The Toronto Stock Exchange closed with a triple digit loss Monday, but pared back earlier losses, as commodity prices weakened amid growing doubts the U.S. and Europe will solve their budget problems.
The S&P/TSX composite index shed 107.76 points to 11,784.68, coming back from an earlier slide of more than 200 points. The mining and energy indices led the TSX lower, down 1.7%, due to a sell-off of oil, gold and copper. The junior venture exchange slid 52.66 points to 1,555.02.
The Canadian dollar was down 0.99 of a cent at 96.36 cents US, its lowest close in six weeks. It earlier dropped to 95.98 cents US.
The January oil contract fell 75 cents to US$96.92 a barrel, December gold was down $46.50 to US$1,678.60 an ounce. It closed below $1,700 for the first time in nearly a month. The copper contract shed 10 cents to US$3.29 a pound.
U.S. equities saw big drops amid reports a congressional committee has failed to agree on a plan to cut the U.S. government’s budget deficit.
The Dow Jones industrial average was down as much as 342 points after the special committee of Congress assigned to come up with $1.2 trillion in deficit cuts over 10 years indicated there would be no deal.
The Dow later closed off 248.85 points to 11,547.31 and the Nasdaq fell 49.36 points to 2,523.14. The S&P index lost 22.67 points to 1,192.98.
Several committee members met in the Capitol at mid-day, but there was no indication of progress toward an 11th-hour compromise. The panel faced an end-of-day deadline to produce an accord to cut $1.2 trillion from the federal deficit over the next decade.
If the committee fails, it will trigger automatic spending cuts over 10 years starting in 2013. Analysts say if Congress tries to dismantle those cuts, it could lead to another downgrade of the U.S. credit rating.
In addition, American markets are operating on a very short work-week because of the U.S. Thanksgiving holiday on Thursday, which could leave many investors on the sidelines. Lower volumes and the potential for increased volatility could spell more selling pressure.
“People are going to square their books, meaning if they see any risk they don’t want to take for the long weekend, they’re going to remove that risk or sell that risk off,” said Ian Nakamoto, director of research at MacDougall, MacDougall and MacTier.
But even as the U.S. deadline approaches, Europe remains a bigger concern for investors, he added.
“This U.S. compromise maybe adds fuel to the fire, but the fire was already there.”
“I don’t think market participants expected much of any deal, Nakamoto said. “We’re right in the middle of political season (and) I don’t think much is going to get done until 2012. I think the main issue by far is still Europe.”
Meanwhile, rating agency Moody’s warned France could face a downgrade because the debt crisis in Europe has pushed borrowing costs higher for the French government. For now, France has a top AAA rating.
The Toronto market tumbled 384 points or 3.13% last week as investors became wary of making bets amid frustration over an apparent lack of recognition by eurozone leaders that time is running out for handling the debt crisis and that available options are dwindling.
In Canadian corporate news, Valeant Pharmaceuticals International Inc. (TSX:VRX) said it had signed an agreement to acquire iNova, a private Australian pharmaceutical group in a deal that could be worth as much as $714 million. Valeant shares added 27 cents to $44.02.
Aecon Group Inc. (TSX:ARE) said it has a preliminary agreement worth $250-million to do interior work on a new process mill at the PotashCorp (TSX:POT) mine site in Saskatchewan. Its shares fell 1.7% or 17 cents to $10.06.
Fairfax Financial Holdings Ltd. (TSX:FFH) has joined the bidding for Prime Restaurants Inc. (TSX:EAT) with an offer of $71 million for the company that operates such eateries as East Side Mario’s, Casey’s and D’Arcy McGee’s. Fairfax shares added $5.25 to $426.72, while Prime shares were up 10% or 72 cents to $7.65.
Prime says it solicited the offer from Fairfax under a provision of its agreement with Cara, which offered last month to pay $59 million for the company. Under its agreement with Prime, Cara now has five business days to submit another bid or back away and receive a termination fee.
Kicking off a week of light economic news, Statistics Canada reported Monday that wholesale sales rose 0.3% in September to $48.7 billion. By volume, Statistics Canada reports wholesale trade fell 0.5%. Economists had expected a 0.7% gain.
Meanwhile, the number of Americans who bought previously occupied homes rose slightly last month but remained at depressed levels. The National Association of Realtors says home sales rose 1.4% last month to a seasonally adjusted annual rate of 4.97 million.