TSX lower as traders look for reassurance on European debt crisis

At the end of another see-saw session, the Canadian dollar lost early momentum to close down 0.56 of a cent at 98.02 cents US after surging as high as 99.15 cents US.

The loss more than cancelled out Tuesday’s triple-point jump. Risk appetite had improved following a report in Britain’s Guardian newspaper that suggested France and Germany were putting the finishing touches on a massive expansion of the region’s bailout fund, possibly to €3 trillion from the current €440 billion.

However, there was little enthusiasm for expanding the rally since traders have felt let down in the past by reports that a comprehensive solution to the debt crisis was at hand.

“The other part is that because no one knows how this is all going to be resolved, like what the final rules are going to be and what it’s going to mean,” said Norman Raschkowan, North American strategist for Mackenzie Financial Corp.

“There is this big information vacuum and so people try to fill it with speculation and it’s the uncertainty that is promoting the volatility. The uncertainty and the fact that there still is a lot of leveraged money that is speculating on what is going to happen.”

The outlook was further muddied Wednesday after German Finance Ministry spokesman Martin Kotthaus said there was no agreement yet in the eurozone on how to boost the lending capacities of the bailout fund – the European Financial and Stability Facility, or EFSF – beyond the €440 billion it has available.

Expanding the bailout fund is not an option, but the aim is to maximize the possible impact of the committed funds, he said.

U.S. markets turned lower with the Dow Jones industrials down 72.43 points to 11,504.62. The Nasdaq composite index lost 53.39 points to 2,604.04, pressured by an earnings disappointment at Apple, while the S&P 500 index fell 15.5 points to 1,209.88.

Volatility has been a fact of life for global markets over the last several weeks as investors price in the likelihood of a default by Greece and how well the region’s banks could stand up to such a development.

The expectation has been that the 17 countries that use the euro were preparing a three-pronged solution to the debt crisis. That would include measures to boost the firepower of the bailout fund, a recapitalization of a large part of the banking sector and a plan to get the banks to take a bigger hit on their Greek debt holdings.

France and Germany disagree on the last point. Germany is pushing for banks to accept cuts of 50% to 60% on their Greek bondholdings, while France is insisting that only technical revisions should be made to a preliminary agreement reached with private investors in July. That deal called for a 21% loss on the bonds.

Meanwhile, the Financial Times reported that the EU believes that bank recapitalization in the region would be less than €100 billion. That compares with a recent International Monetary Fund report that identified a €200 billion shortfall in banks’ balance sheets stemming from sovereign debt writedowns. It also falls far short of analyst estimates that banks might have a capital deficit of up to €275 billion.

On the TSX, miners sustained sharp losses with the base metals sector down 5.46% as the December copper contract in New York was down 10 cents at US$3.26 a pound. Teck Resources (TSX:TCK.B) fell $1.83 to C$34.12 and Ivanhoe Mines (TSX:IVN) dropped $1.47 to C$16.81.

The gold sector fell about five per cent while bullion prices turned lower as the December contract dropped $5.80 to US$1,647 an ounce. Goldcorp Inc. (TSX:G) shed $2.42 to C$45.34 and Barrick Gold Corp. (TSX:ABX) faded $2.12 to C$45.68.

Agnico-Eagle Mines Ltd. (TSX:AEM) shares tumbled $10.62 or 18.3% to $47.35 after the miner said it is suspending operations at its flooded Goldex mine in the Abitibi region of Quebec and will take a US$170 million after-tax writedown on the property in the third quarter.

Oil prices were also volatile with the November crude contract on the New York Mercantile Exchange closing down $2.23 to US$86.11 a barrel after earlier hitting a session high of US$89.03. The energy sector was down 1.4% with Cenovus Energy (TSX:CVE) off 78 cents at C$35.25 and Suncor Energy (TSX:SU) lost 56 cents to $30.04.

Tech stocks were also weak following mixed earnings reports from the U.S. tech sector Tuesday.

Apple shares were down 5.6% to US$398.62 after the company missed expectations for earnings and revenue. Smartphone rival Research In Motion Ltd. (TSX:RIM) fell 81 cents to US$22.78.

But Intel’s stock was up 3.6% to US$24.24 as the chipmaker’s quarterly net income rose 17% and revenue rose 29%, topping Wall Street targets. Intel CEO Paul Otellini credited stronger sales of processors for laptop PCs and servers.

Wi-LAN Inc. (TSX:WIN) has boosted its takeover bid for rival patent house Mosaid (TSX:MSD) by 11% to $42 per share, raising the total offer to $500.6 million. Wi-LAN shares slipped five cents to $6.11 while Mosaid shares were up $1.41 at $42.27.

In other corporate news, Maple Leaf Foods (TSX:MFI) is cutting 1,550 jobs, closing plants in four provinces and streamlining distribution. The Toronto-based maker of processed meats and other foods said Wednesday the changes are part of a three-year $560-million restructuring plan expected to boost competitiveness and profitability. Its shares fell 18 cents to $10.40.