TSX down as resource stocks back off on Chinese growth concerns

The commodity-sensitive Canadian dollar backed off 0.57 of a cent to 100.58 cents US as demand concerns pushed down prices for copper.

U.S. markets were also in the red after China’s premier Wen Jiabao lowered the economy’s growth target to 7.5% from the eight per cent level it has stood at for years as he outlined plans to boost domestic consumption and to maintain a “prudent” monetary policy.

“It serves as a confirmation of what everybody already kind of knew and that is that China is going to grow at a slower pace than any of us would like to see, and certainly a slower pace than it has been for the better part of the last decade,” said Craig Fehr, Canadian markets strategist at Edward Jones in St. Louis.

Wen said that China’s economy is encountering new problems, citing downward pressure on economic growth and high prices.

The Dow Jones industrial average lost 14.76 points to 12,962.81, the Nasdaq composite index was down 25.71 points to 2,950.48 and the S&P 500 index dipped 5.3 points to 1,364.33.

China’s economy grew by 9.2% last year, down from 10.3% in 2010 as the government tries to gradually slow growth and tame high inflation. In addition, many local governments are struggling with their debt and with Europe in crisis and the U.S. recovery fragile, demand for Chinese exports is weakening.

Strong Chinese growth has been an important prop for a global economy still struggling to recover from the 2008 financial crisis, and that growth has also supported higher commodity prices and rising stock prices on the resource-heavy Toronto stock market.

Despite the weak showing on stock markets, analysts say markets have faith that China’s economy isn’t in for any serious deterioration.

“One of the bright spots there is that China does have the capacity from a policy standpoint to stimulate growth better maybe than some of the developed nations are,” said Fehr.

“So when we see them come out with a number like targeting 7.5%, I think it’s not all that worrisome. Let’s not forget, that’s more than three times what the U.S. and Canada is likely to grow at.”

Oil prices were volatile and the April contract on the New York Mercantile Exchange closed two cents higher to US$106.72 a barrel and the energy sector declined 1.83%. Imperial Oil (TSX:IMO) shed 81 cents to $46.08 while Suncor Energy (TSX:SU) dropped 64 cents to $34.81.

But the base metals component was down 4.42% as May copper shed four cents to US$3.86 a pound. China is the world’s biggest consumer of copper, viewed as an economic bellwether since it is used in so many businesses. Teck Resources (TSX:TCK.B) lost $2.32 to $36.20 and HudBay Minerals (TSX:HBM) declined 37 cents to $11.30.

The gold sector lost 1.71% as bullion also headed lower with the April contract down $5.90 to US$1,703.90 an ounce. Goldcorp Inc. (TSX:G) gave back 92 cents to $47.65 while Kinross Gold Corp. (TSX:K) gave back 21 cents at $10.57.

The industrials group fell back 0.68% with Bombardier Inc. (TSX:BBD.B) down 11 cents to $4.23.

Techs were also weak as Research In Motion Ltd. (TSX:RIM) fell 35 cents to $13.25. Its shares came under renewed pressure late last week when Jefferies & Co. cut its earnings estimate and said there was a greater than 50% chance that the BlackBerry maker will miss its device sales forecast for the fiscal fourth quarter, which ended in February.

In economic news, data pointed to an American economic recovery that continues to improve.

U.S. businesses sharply reduced orders for machinery and other core capital goods in January after a tax credit expired, pushing U.S. factory orders down by one per cent, less than the 1.3% drop economists expected. It is the largest decline in 15 months but even with the decrease, orders are near pre-recession levels.

Also, U.S. service companies expanded in February at the fastest pace in a year, helped by increased demand for new orders and growth in hiring. The Institute for Supply Management’s index of non-manufacturing activity rose to 57.3, up from January’s 56.8. Any reading above 50 indicates expansion.

The employment news was particularly welcome coming ahead of the release of the non-farm payrolls report for February which comes out on Friday.

On the corporate front, construction giant SNC-Lavalin Group Inc. (TSX:SNC) has been chosen to manage a $2-billion environmental upgrade in northern Ontario for Brazilian mining giant Vale SA (NYSE:VALE). SNC shares were down 66 cents to $39.34.

Enbridge Inc. (TSX:ENB) has shut down a pipeline that carries oil from Canada to the U.S. after two vehicles crashed through a fence outside Chicago and struck the pipeline, causing a fiery explosion. A second, undamaged line was also shut down as a precaution. Both lines carry crude oil from Enbridge’s facility in Superior, Wis. to a terminal in Griffith, Ind. The undamaged line has reopened, but the other remains closed and it likely won’t be restarted until Thursday. Enbridge shares added four cents to $38.33.