Source: The Canadian Press

Resource issues led the Toronto stock market lower Thursday as commodity prices retreated amid fears China will make further moves to slow its economy to deal with inflation.

The S&P/TSX composite index closed well off early lows, coming back from a 200-point deficit to finish the session down 107.72 points at 13,331.32, while the TSX Venture Exchange lost 37.34 points to 2,247.68.

Declining commodities pushed the Canadian dollar down 16-100ths of a cent to 100.29 cents US.

Concerns about China increased on news that the country’s economy grew by 9.8% in the fourth quarter of 2010, up from 9.6% in the previous three-month period.

The strong data fuelled speculation that China’s monetary authorities will have to do more to cool the economy and ease inflationary pressures.

“Good news from a growth perspective is not being pursued positively from the markets,” observed Sid Mokhtari, market technician at CIBC World Markets.

“In other words, market participants are expecting, perhaps, China to start to cool off the rate of growth that they have had.”

Though separate figures showed that China’s inflation did drop in December to 4.6% from a 28-month high of 5.1% the month before, price rises remain stubbornly high and could pose a danger to the Chinese economy if left unchecked.

China has moved several times over the past year towards tighter monetary policy. Just last week, the central bank raised the amount of money banks must keep on reserve.

Such moves usually have a short-term negative effect on the resource-weighted TSX since strong demand by China for commodities helped push the Toronto market up 14% last year and drove copper prices to a fresh record high as recently as Wednesday.

The TSX energy sector declined 0.38% as the February crude contract on the New York Mercantile Exchange fell $2 to US$88.86 barrel.

Suncor Energy (TSX:SU) lost 20 cents to C$37.67 while Cenovus Energy (TSX:CVE) was down 20 cents at $31.60.

The March copper contract on the Nymex dropped 10 cents to US$4.27 a pound, sending the base metals sector down 3.14%. Teck Resources (TSX:TCK.B) fell $2.09 to C$60.27 while Taseko Mines (TSX:TKO) shed 31 cents to $5.49.

Gold stocks also lost ground as the February bullion contract in New York was down $23.70 at US$1,346.50 an ounce. Barrick Gold Corp. (TSX:ABX) faded 72 cents to C$46.81 while Goldcorp Inc. (TSX:G) shed 16 cents to $40.42.

Tech stocks were also lower with shares in Research In Motion Ltd. (TSX:RIM) (Nasdaq:RIMM) down 84 cents at C$62.21 after the BlackBerry maker said its talks with the Indian government over access to deciphering emails sent through its devices were “ongoing and positive.” An Indian newspaper had earlier reported that RIM had temporarily suspended talks with the government after a leak to the media of sensitive information related to the talks.

Financials also weighed on the TSX as National Bank (TSX:NA) ran down 76 cents to $70.01.

Elsewhere on the TSX, market heavyweight PotashCorp (TSX:POT) backed away on demand concerns, losing $5.07 to $161.14.

Mokhtari said he believes Thursday’s downturn could signal the start of a much needed minor correction since the TSX has run up about 20% since the lows of last summer without such a consolidation.

“We’ve had a very good run and I would say it’s not a bad thing to pause a little bit, consolidate,” he said. “Corrections are roughly 4 to 7% (over four to six weeks) but I think investors should embrace this correction.”

New York markets were lower despite a strong earnings report from investment bank Morgan Stanley and good economic news.

The Dow Jones industrial average lost 2.49 points to 11,822.8.

The Nasdaq composite index fell 21.07 points to 2,704.29 and the S&P 500 index was down 1.66 points at 1,280.26.

Morgan Stanley said its quarterly earnings increased 60% to US$600 million, or 41 cents a share, on strong investment banking results. That was a penny better than analysts expected and its shares were ahead 4.58% at US$29.02.

Internet giant Google Inc. reported better-than-expected fourth quarter earnings after markets closed Thursday. Its earnings per share came in at US$8.75, beating analysts’ estimates of $8.09. Revenue was US$6.4 billion, while analysts’ had expected $6.06 billion. Its shares gained $5.35 to US$626.77 in early after-hours trading.

The U.S. Labour Department said the number of people seeking unemployment benefits fell by 37,000 to a seasonally adjusted 404,000 for the week ended Jan. 15.

And a private research group’s gauge of future economic activity rose in December, suggesting the U.S. economy will strengthen over the next few months. The Conference Board said that its index of leading economic indicators rose 1% last month after a 1.1% increase in November.

Meanwhile, sales of existing U.S. homes jumped 12.3% in December, providing an encouraging end to the worst year since 1997.

In other corporate news, Wi-LAN Inc. (TSX:WIN) shares fell 46 cents, or 7%, to $6.11 as the company announced the settlement of a patent dispute with U.S. technology company Broadcom Corp. The deal comes just days after the Canadian company reached similar patent settlements with industry leaders Intel Corp. and Atheros Communications Inc.

The company is also involved in ongoing discussions with a number of other companies over alleged patent infringements involving laptops and routers.

IE