Source: The Canadian Press

The Toronto stock market could be in for another losing week as investors become reluctant to send a 2 1/2 month rally any higher with hints of a slowing Chinese economy and the possibility of more European government debt woes.

“I would think we would be in consolidation between now and the end of the year,” said Phillip Petursson, director of institutional equities at MFC Global Investment.

The Toronto stock market ended last week down 176 points or 1.36% as commodity prices retreated on speculation that the Chinese government will have to take further steps to combat high inflation and suggestions that Ireland might have to ask for a financial bailout.

Data showing that inflation hit a 25-month high in October has raised expectations that China could take measures to tighten credit and slow economic growth, including raising interest rates.

TSX energy and mining stocks came under selling pressure since any moves to slow the Chinese economy have been negative for the resource-heavy Toronto market as heavy demand from China has helped raise prices for oil and metals, along with other commodity stocks.

Ireland’s debt crisis has also cast a pall over markets over the last couple of weeks and it may need a financial rescue from the other countries that use the euro.

“They seem to be caught between a rock and a hard place, because Ireland has already had austerity and a lot of it,” said Colin Cieszyksi, market strategist at CMC Markets Canada.

“With Greece, you could say OK, they’re been living beyond their means, but Ireland had been trying austerity for two years.”

The Toronto market is up about 8.5% year to date, but it wasn’t until late August that the TSX managed to lift itself from negative territory. That’s when U.S. Federal Reserve chairman Ben Bernanke assured markets that the Fed would do whatever was necessary to keep a fragile economic recovery on the rails.

Markets got an extra lift after the Fed said Nov. 3 that it would inject US$600 billion into the economy by buying government bonds. That same week also saw positive manufacturing data and a better than expected October employment report from the U.S.

But with the third-quarter earnings season rapidly winding down and a lack of market moving economic data this week, investors will likely be tempted to take profits.

“I think they will probably give back some, just because from here there’s probably not going to be any new news that can really keep (the rally) going,” added Cieszyksi.

“And that’s going to be the biggest issue going forward.”

But analysts don’t anticipate a rush for the exits that would take away a big chunk of the market’s hard-won gains for the year.

“I would view this as nothing more than sort of a consolidation and pause,” said Norman Raschkowan, North American strategist at Mackenzie Financial Corp.

“I think that investors will start looking at the fact that the economy is growing, things are getting steadily better. It’s a slower pace than people would have liked but the reality is that conditions will continue to improve and you will probably see as we go into RSP season more people looking to direct funds to equity markets and to balanced funds and not so much into money market or bonds.”

Meanwhile, the key economic report from the U.S. this week will be October retail sales.

“American retailers have been on the mend lately and the uptrend in sales likely continued in October, albeit at a more moderate pace,” said a commentary from CIBC World Markets.

CIBC expects the data will show sales were up 0.5% on the month following a 0.6% increase in September.

In Canada, investors will look to September manufacturing sales. Weaker exports are expected to translate into a 0.8% drop after rising 2% in August.