TSX tumbles after two days of strong gains

The S&P/TSX composite index fell 191.71 to 11,588.36 as investors going into the long Thanksgiving weekend cashed in some profits from two days of strong gains that pushed the TSX up about 600 points. The TSX Venture Exchange was down 7.69 points at 1,472.5.

American markets closed lower even as the U.S. Labour Department said that the economy added 103,000 jobs last month while the jobless rate held steady at 9.1%. The report beat very modest expectations: economists had looked for the U.S. economy to crank out about 55,000 jobs in September.

The Dow Jones industrial index shed 20.21 points to 11,103.12.

The Nasdaq composite index lost 27.47 points to 2,479.35 and the S&P 500 index declined 9.51 points to 1,155.46.

The Canadian dollar closed little changed, down 0.05 of a cent at 96.31 cents US after Statistics Canada reported that the Canadian economy created 61,000 net new jobs in September, while the unemployment rate dropped 0.2 of a point to 7.1%.

In Canada, economists had reckoned that about 15,000 jobs would be created last month and that the jobless rate would remain unchanged. But a return to school added 38,800 jobs in the education sector.

“A quirk in the seasonal adjustment process has, for the past few years, shown big job losses at the end of the school year and then heavy rehiring when the new school year begins,” said CIBC World Markets chief economist Avery Shenfeld.

“In fact, private sector employment fell 15,000 in the month, although it is still up a healthy 2.2% from a year ago.”

Beyond the jobs figures and the Fitch downgrade, investors continued to digest other developments in Europe’s debt crisis amid another sign the banking sector faces renewed stress.

A dozen British banks have had their credit ratings downgraded by Moody’s Investors Services over doubts about the strength of the government’s support.

While the agency believes that the British government will continue to provide some support to systemically important financial institutions, it said the government was more likely to allow smaller institutions to fail.

Moody’s insists that its downgrades have nothing to do with any worsening in the financial strength of the sector or the state of the government’s public finances as economic growth stalls.

A near standstill in growth prompted the Bank of England on Thursday to launch a 75-billion-pound monetary stimulus.

Stock markets had risen sharply over the previous couple of days amid mounting hopes that European policy-makers were preparing a plan to shore up the banking sector in the event of a Greek debt default.

“I think what happened in terms of the rally was finally the words banks, recapitalization and debt crisis were combined in a similar sentences,” said John Stephenson, portfolio manager at First Asset Funds Inc.

“Finally they have heard what the market is telling them — that this is bigger than Greece, it threatens the banking sector.”

The European Central Bank offered new emergency loans to banks on Thursday to help steady them through the government debt crisis to provide financing for a longer period and shield them from turbulence in borrowing markets.

But analysts observed that the measures won’t keep banks from facing questions about solvency.

Oil prices advanced following the release of the American jobs data, adding to two days of strong gains amid data showing an unexpected rise in U.S. inventories.

The November crude contract on the New York Mercantile Exchange rose 39 cents to US$82.98 a barrel after surging $7 over the previous two days, but the TSX energy sector was down two per cent. Canadian Natural Resources (TSX:CNQ) lost $1.27 to C$30.20 while Imperial Oil (TSX:IMO) shed 79 cents to $38.10.

The base metals sector lost 4.56% even as copper prices also rallied for a second day on signs of increased demand from China, with the December contract up three cents to US$3.27 after jumping 14 cents on Thursday. Sector heavyweight Teck Resources (TSX:TCK.B) fell $1.67 to C$33.65 while HudBay Minerals (TSX:HBM) lost 45 cents to $10.55.

Gold stocks also fell as the December gold contract in New York dropped $17.40 to US$1,635.80 an ounce. The sector lost about 2.5% while Barrick Gold Corp. (TSX:ABX) fell $1.14 to C$48.44 and Goldcorp Inc. (TSX:G) faded $1.12 to $48.12.

The financial sector gave back 1.14% as Royal Bank (TSX:RY) dropped 66 cents to $47.30.

Tech stocks were also a weight, with Research In Motion (TSX:RIM) down $1.10 at $24.30.

In corporate news, energy producer Enbridge Inc. (TSX:ENB) has agreed to become a majority owner of the Cabin Gas Plant in British Columbia for $250 million. The Calgary-based energy producer said it would pick up a 57.6% stake from Encana Corp. (TSX:ECA) and other co-owners of the property. Enbridge shares were 28 cents higher at $33.42 and EnCana lost 94 cents to $19.17.