TSX backs off amid mixed economic data

“The American numbers look pretty good and essentially the other stuff looking soft, whether you’re looking at China or Europe.”

The S&P/TSX composite index fell 38.63 points to 11,504.42 while the TSX Venture Exchange slipped 1.01 points to 1,404.93.

The Canadian dollar was up 0.36 of a cent to 96.55 cents US.

U.S. markets were off earlier highs amid positive employment news and a much better than expected reading on the manufacturing sector.

The Dow Jones industrial average came off a strong triple-digit advance to close up 45.33 points to 11,868.81, the Nasdaq was up 1.7 points to 2,541.01 while the S&P 500 index rose 3.93 points to 1,215.75.

The U.S. Labour Department said that the number of people applying for unemployment benefits fell by 19,000 to a seasonally adjusted 366,000 last week, the lowest level in more than three years.

And the Philadelphia Fed Index bounded ahead to a 10.3 reading in December, much better than the 3.6 advance recorded in November.

“The better than expected Philly Fed Index supports the view that underlying conditions in the industrial sector have improved,” said CIBC World Markets economist Andrew Grantham.

There was relief on financial markets after Spain successfully raised €6.03 billion in a bond auction with demand roughly double the amount on offer.

The sale was seen as a confidence test as fears about Europe’s debt crisis grew and came a day after the euro slumped below US$1.30 for the first time since January after Italy was forced to pay higher borrowing rates to get investors to buy its bonds. The euro stood at US$1.3014 late Thursday afternoon.

Meanwhile, other data on Thursday showed slowing economic conditions in Europe and Asia.

There was further indication Europe is sliding toward recession after a purchasing managers’ index showed eurozone manufacturing and services output contracted for a fourth month in December.

A problem for the region’s economy is that Europe’s debt crisis is squeezing credit conditions for banks in the region. Not only are banks less inclined to loan to each other, they’re also reluctant to loan money to businesses and households.

Many economists have said the best way to convince markets that heavily-indebted countries can pay their debts is to allow the European Central Bank to print more money and buy up the bonds of countries such as Italy and Spain.

That idea has come under heavy resistance from Germany and the ECB itself. And on Thursday, ECB president Mario Draghi said there’s “no external saviour” for heavily indebted governments in the eurozone debt crisis.

“The story with respect to the ECB remains the same and that can’t be construed as positive,” added Gorman.

“Time will tell if they hold to that point of view in the long term.”

And preliminary manufacturing figures showed that Chinese factory output contracted, but at a slower rate, in December. HSBC’s purchasing manager’s index for December stood at 49.0, up from 47.7 in November. Any number below 50 indicates a contraction in manufacturing activity.

Resource stocks weakened as commodity prices continued to lose ground. Prices for oil, gold and copper tumbled Wednesday as traders avoided anything risky and piled into the safe haven status of the U.S. dollar.

The gold sector led TSX losers, down about 1.5% as the February bullion contract lost early momentum and fell $9.70 to US$1,577.20 an ounce, adding to Wednesday’s $76 tumble. Barrick Gold Corp. (TSX:ABX) faded 68 cents to US$45.79 and Agnico-Eagle Mines (TSX:AEM) was down $2.15 to C$38.

The industrials sector fell 1.09% as Canadian National Railways (TSX:CNR) shed $1.22 to $75.03 while Canadian Pacific Railway (TSX:CP) fell $1.64 to $63.86.

The base metals component declined 1.2% while March copper closed down a penny at US$3.27 a pound following a 16-cent plunge on Wednesday. First Quantum Minerals (TSX:FM) declined 37 cents to C$18.18 while Teck Resources (TSX:TCK.B) moved down 66 cents to $34.43.

The energy sector slipped 0.29% as the January crude contract on the New York Mercantile Exchange dipped $1.08 to US$93.87 after falling more than $5 on Wednesday. Cenovus Energy (TSX:CVE) fell 40 cents to $31 while Suncor Energy (TSX:SU) shed 54 cents to $27.59.

The financials group was slightly lower with TD Bank (TSX:TD) down 55 cents to $71.85.

There was some major acquisition activity in the financial sector. Canaccord Financial Inc. (TSX:CF) is buying U.K.-based Collins Stewart Hawkpoint in a deal that values the British company at about $406.7 million. Canaccord shares were down 70 cents to $7.80.

In other corporate news, shares in Finning International Inc., (TSX:FTT) one of the world’s biggest sellers of Caterpillar trucks and other heavy equipment, were down $1.27 to $22.05 as the company placed revenue targets at about five per cent growth in 2012. It expects growth of about 10% in both 2013 and 2014.

FedEx says strong online shopping leading into the holidays nearly doubled its net income for the second quarter to US$497 million. Revenue rose 10% to US$10.59 billion. FedEx shares rose eight per cent to US$83.47.