Source: The Canadian Press

Falling energy and gold stocks led the way to a lower session on the Toronto stock market Thursday as investors stepped back from recent strong gains based on hopes that the U.S. Federal Reserve will quickly take additional steps to stimulate the economy.

The S&P/TSX composite index broke a three-session winning streak, losing 53.62 points to 12,619.69 and the TSX Venture Exchange was 6.71 points lower at 1,822.03.

A weak U.S. dollar lifted the Canadian dollar past parity for the first time since the end of April, rising almost two thirds of a cent early in the day. It closed at 99.4 cents US, down 0.12 of a cent from Wednesday.

Stocks have been driven higher recently on the prospect that the Fed could take action to stimulate the U.S. economy as early as its next meeting to set interest rates on Nov. 2 and 3.

The U.S. Federal Reserve is widely expected to embark on another round of quantitative easing, which involves the Fed pumping more money into the U.S. economy by purchasing government bonds and taking other measures to encourage lending. But analysts note that such a move increases the quantity of money and that lowers the value of each U.S. dollar.

Oil gave up early gains despite U.S. dollar weakness and data showing signs of lower inventories. The U.S. Energy Department reported Thursday that crude inventories fell 1.8 million barrels last week, which suggested demand may be growing.

The November crude contract on the New York Mercantile Exchange lost 32 cents to US$82.69 a barrel, taking the energy sector on the TSX down 0.85%. Suncor Energy (TSX:SU) was off 59 cents at C$34.72 while Talisman Energy (TSX:TLM) shed 23 cents to C$18.18 .

Gold stocks were weak even as December bullion pushed $7.10 higher to another record close of US$1,378.50 an ounce in New York. Barrick Gold Corp. (TSX:ABX) declined 32 cents to C$49.09 while Kinross Gold Corp. (TSX:K) faded 29 cents to $19.46.

Tech stocks were also weak with Research In Motion Ltd. (TSX:RIM) down 82 cents at $49.45.

The base metals sector was flat with the December copper contract on the Nymex unchanged at US$3.82 a pound. Teck Resources (TSX:TCK.B) was up 61 cents at C$46.60 while Taseko Mines (TSX:TKO) dropped 73 cents to C$6.21.

U.S. markets were slightly lower amid other data that showed rising unemployment insurance claims.

“It’s bad news, good news — we know the economy is still weak and with the jobs data we know the Fed has to loosen up,” said Irwin Michael, president of Toronto-based I.A. Michael Investment Counsel Ltd. and manager of three ABC funds.

“On the other hand, if good news comes out on the economy the Fed doesn’t have to do very much. So it’s a very interesting situation right now where good and bad news is deemed to be good by the market. And that tends to happen in a bullish environment.”

The U.S. Labour Department said Thursday that initial claims for unemployment aid rose by 13,000 to a seasonally adjusted 462,000. It was only the second rise in two months.

Despite the ups and down, claims have been stuck near 450,000 all year.

The Dow Jones industrial average moved down 1.51 points to 11,094.57.

The Nasdaq composite index was down 5.85 points at 2,435.38 while the S&P 500 index fell 4.29 points to 1,173.81.

Financial shares were the major drag on the New York market as concerns grew about foreclosure practices at the big banks. Shares of big banks like JPMorgan Chase & Co. and Bank of America Corp. dropped as they have suspended foreclosing on homes to review their practices.

In other economic news, Statistics Canada reported that the country’s trade deficit with the world narrowed considerably in August, falling to $1.3 billion from $2.5 billion in July.

The improvement came as merchandise exports rose 3.1% to $34 billion in August while imports declined 0.5% to $35.3 billion.

In the U.S., the trade deficit widened sharply in August, increasing 8.8% to US$46.3 billion as the politically sensitive deficit with China climbed to an all-time high.

On the corporate front, shares in Internet search engine Yahoo were up 68 cents at US$15.93 in New York after The Wall Street Journal reported that AOL and several private-equity firms were considering a possible takeover bid.

Sun Life Financial Inc. (TSX:SLF) shares headed 25 cents lower to $26.67 as the company announced that president Jon A. Boscia is to retire in early 2011 and will join the company’s board of directors. No replacement has been announced.

Elsewhere in the financial sector, Bank of Montreal (TSX:BMO) chief executive Bill Downe says the company is exploring the possibility of starting a wealth management division in China. He made the comment as he opened BMO’s new subsidiary, Bank of Montreal (China) Co. Ltd., and said the region is a key growth market outside North America. BMO shares added 13 cents to $60.34.