TSX to head lower amid worries European debt crisis getting worse

U.S. futures were also lower after the results of a Spanish debt auction soured moods. The country paid just over seven per cent to raise €3.56 billion in 10-year bonds, the highest rate since 1997 and a level seen as unsustainable over the long term. Demand was relatively weak and the interest rate was much higher that the 5.5% that was demanded at an auction of 10-year bonds on Oct. 20.

The Dow Jones industrial futures fell 24 points to 11,821, the Nasdaq futures lost 4.8 points to 2,309 while the S&P 500 futures were down 3.4 points to 1,227.6.

Italian and French bond yields also rose as investor fled to buy only the safest of investments, such as German bonds. The result of a French bond auction will be watched closely for a rise in borrowing costs in Europe’s second-largest economy.

Markets frustrated with the failure of Eurozone leaders to come up with a comprehensive solution to the region’s government debt crisis have been demanding ever higher interest rates to buy bonds from heavily-indebted countries.

The crisis has been a huge weight on stock markets for months on worries that it will plunge Europe back into recession, possibly dragging the rest of the global economy into a downturn, and inflicting severe damage on the financial system.

Stock markets were negative on Wednesday as the interest rate on Italian 10-year bonds hovered around seven per cent. Sentiment was further rocked late in the session after Fitch Ratings said that the credit outlook for U.S. banks can worsen if the euro-zone debt crisis is not resolved in a timely manner.

Fitch maintained Europe’s sovereign debt crisis still poses a threat to U.S. banks even though the institutions have reduced their exposure to the region over the past year.

Commodity prices have also been volatile because of worries that a slowing global economy will need much less oil and metals. Lower commodities would in turn pressure energy and mining stocks on the resource-heavy TSX.

The higher U.S. dollar also pressured prices for oil and metals Thursday. That’s because a stronger greenback usually helps depress commodity prices, which are denominated in dollars, as it makes oil and metals more expensive for holders of other currencies.

Oil prices headed lower with the December contract on the New York Mercantile Exchange was down $1.47 to US$101.12 a barrel, giving up about half of Wednesday’s gain. Prices surged in the wake of a deal involving Enbridge Inc. (TSX:ENB) that will see the Canadian pipeline company pay US$1.15 billion to buy half ownership of a U.S. pipeline system. Enbridge said the direction of crude oil flows in the Seaway pipeline will be reversed to enable it to transport oil from the main oil supply hub at Cushing, Okla., to the Gulf Coast. That would help unclog a glut of supply at Cushing, which has recently driven down the price for oil.

Metal prices also fell heavily as the December copper contract gave up seven cents to US$3.42 a pound.

Bullion prices also faded with the December contract down $21.50 to US$1,752.80 an ounce.

European indexes tumbled as London’s FTSE 100 index dropped 1.79%, Frankfurt’s DAX lost 1.3% and the Paris CAC 40 was down 1.25%.

In Asia, Hong Kong’s Hang Seng dropped 0.8% while South Korea’s Kospi climbed 1.1% and Japan’s Nikkei 225 index was up 0.2%.

Mainland China’s benchmark Shanghai Composite lost 0.2% while the Shenzhen Composite Index gained 0.1%.

In earnings news, Canadian Satellite Radio Holdings Inc. (TSX:XSR), parent of XM Canada and Sirius Canada, posted a deeper fourth-quarter operating loss of $3.5 million from $2.6 million. Revenue grew to $61.4 million from $54.1 million.

In the U.S., Sears Holdings Corp.’s third-quarter loss widened, dragged down by weakness in Canada, declining consumer electronics sales and softer clothing sales at its Kmart stores. The operator of Sears and Kmart stores reported Thursday that it lost US$421 million, compared to a loss of $218 million a year ago.

Earlier this week, the company’s Sears Canada unit reported a net loss of C$46.6 million in the three months ended Oct. 30, reversing a profit last year.