Source: The Canadian Press

The Toronto stock market slumped into the red Tuesday, as commodities pulled back from record territory and a 3% drop in the price of gold weighed heavily on the market.

The S&P/TSX composite index reversed early morning gains to close 40.91 points lower at 13,402.31, led by a 2% decline in the materials sector that pulled the market into the red.

The TSX Venture Exchange lost 12.73 points to 2,275.12.

The Canadian dollar opened the year above parity against the U.S. dollar, but gave back 0.39 cents to 100.15 cents US as commodities moved lower.

Commodities are backing away from record territory after leading the stock market higher in recent trading sessions, a sell off that is typical after new highs are reached, said Kate Warne, Canadian market strategist at Edward Jones in St. Louis.

Warne said it’s odd that the TSX didn’t make solid gains after a strong performance Monday by the U.S. markets.

“I think if there’s a pullback, it’s short term and it’s much more related to profit taking and perhaps concerns about how fast the commodities have risen as opposed to something much more fundamental,” Warne said.

“With stock markets doing better and good economic news some of the people who thought that gold would be a good place to hide if things got worse may be deciding that they would do better investing in companies that benefit from the strong global economy,” she added.

The February gold contract lost $44.10 — or 3.1% — to US$1,378.80 per ounce after hitting a record high of $1422.90 Monday. Shares in Goldcorp Inc. (TSX:G) fell 3% or $1.38 to C$44.50. The February crude contract lost $2.17 — or 2% — to settle at US$89.38 a barrel after climbing to a 26-month high of $92.07 a barrel earlier in the day, as investors wondered if the price of crude has climbed too high, too fast. On the TSX, the energy sector made a slight 0.1% gain with shares in Suncor Energy Inc. (TSX:SU) losing 24 cents to C$38.04.

The March copper contract on the Nymex fell nine cents to US$4.37 per pound after reaching a record high of $4.46 Monday. The metals and mining sector was among the top TSX advancers, up 1%, with shares in Teck Resources (TSX:TCK) up $1.05 cents or 1.7% at C$62.84.

The TSX starts the new year after logging a gain of slightly more than 14% for 2010 amid high hopes for continued recovery of the U.S. economy.

Positive U.S. economic data met with mixed reaction on Wall Street Tuesday. The Dow Jones industrial average moved 20.43 points higher at 11,691.18, while the Nasdaq lost 10.27 points to 2,681.25 and the broader Standard & Poor’s 500 fell 1.69 points to 1,270.20.

Traders took in minutes from the U.S Federal Reserve’s closed door meeting on Dec.14 released Tuesday that showed officials stuck with the pace of their $600 billion Treasury bond-buying program last month because the economy wasn’t improving fast enough to make a noticeable dent in unemployment.

Spending by consumers and businesses that improved heading into the final month of 2010, which made officials more confident the economic recovery would gain momentum.

Earlier Tuesday, the U.S. Commerce Department said factory orders posted a solid gain and outside transportation jumped by the largest amount in eight months in November. It was the second day of positive economic data in the new year.

Wall Street got a boost Monday from manufacturing data that showed activity in the U.S. spiked to a six-month high in December. Canadian stock markets were closed Monday for a holiday.

In Canadian corporate developments, Bombardier Aerospace (TSX:BBD.B) says it has received firm orders for four CRJ700 NextGen regional jets from SkyWest Inc. in a transaction valued at US$148 million. Shares were up four cents to $5.05.

Atrium Innovations says it has acquired dietary supplement marketer Seroyal International for US$110 million in cash. Shares in the Quebec-based manufacturer and seller of supplements gained 7.3% or $1.11 at $16.33.

Torstar (TSX:TS.B) said it has received $40 million in connection the Woodbridge Company Ltd.’s move to increase its stake in the Globe and Mail to 85%. Shares in Torstar fell 14 cents to $12.07.

Automakers such as General Motors Co., Ford Motor Co. and Toyota Motor Corp. reported strong December and year-end sales figures in both Canada and the U.S. Shares in Magna International Inc. gained 7.6% or $3.94 to $55.85.

The main focus this week will likely be the heavy flow of economic data, particularly out of the U.S., which culminates in Friday’s closely watched nonfarm payrolls report for December — the figures often set the stock market tone for a week or two after their release.

The hope is that Friday’s nonfarm payrolls data will show that unemployment is on the way down.