TSX tumbles as German official dampens expectations for quick European debt fix

Finance ministers from the Group of 20 leading industrial and developing countries reiterated their belief during the weekend that Europe, in particular Germany and France, are thrashing out a comprehensive plan to stabilize the debt crisis.

And that led traders to hope that a program would be finalized at a European Union summit which concludes Sunday and then presented the following week at the G20 government leaders meeting.

But on Monday, German Chancellor Angela Merkel’s spokesman, Steffan Seibert, said the EU meeting is only an “important step” on a long road.

Seibert observed that Merkel was saying that renewed dreams of having everything solved and done with next month “will again not be fulfilled.”

“I think everyone last week decided that the European crisis was over, that it was all going to get solved by the end of the month,” said Kate Warne, Canadian markets specialist at Edward Jones in St. Louis.

“Nobody should be hugely surprised because the process in Europe seems to be to promise a lot and deliver a little and we’ve seen that for the last year and a half.”

The Canadian dollar fell 1.12 cents US to 97.84 cents US as the U.S. dollar strengthened following Seibert’s comments.

U.S. markets also tumbled following a solid gain last week, with the Dow Jones industrials tumbling 247.49 points to 11,397. The Nasdaq composite index lost 52.93 points to 2,614.92 and the S&P 500 index was down 23.72 points at 1,200.86.

Markets have been intensely volatile for weeks because the European government debt crisis threatens to inflict severe damage on the financial sector and send the global economy back into recession.

But the TSX surged 4.25% last week while the Dow Jones industrials jumped just shy of five per cent on signs that European leaders were set to deal with the crisis.

As well as being lifted by hopes of a big eurozone plan, markets have advanced because of mounting evidence that the U.S. economy might be getting over a summer soft patch that had raised fears that the world’s largest economy could be heading back into recession.

Such a downturn would lower demand for oil, copper, coal, wood and many of the resources Canada produces.

That would weaken exports and squeeze profits, eroding a main driver of share prices on the resource-heavy TSX.

Last week ended with the release of data showing better than expected U.S. retail sales in September and strong Canadian manufacturing sales in August.

The base metals sector led decliners, down five per cent as the December copper contract on the Nymex declined three cents to US$3.38 a pound. Teck Resources (TSX:TCK.B) fell $1.40 to C$35.29 and Ivanhoe Mines (TSX:IVN) gave back $1.28 to $17.15.

Mining giant Rio Tinto said Monday that it will sell 13 of its aluminum assets worth about $8 billion, including refineries, smelters, power stations and a mine, as the world’s second biggest miner seeks to focus on its more profitable Canadian operations.

Rio Tinto bought the Canadian aluminum company Alcan Inc. for $38 billion in 2007. Rio Tinto shares were down 4.47% to US$51.12 in New York.

The financial sector was down 1.24% amid a warning from Sun Life Financial (TSX:SLF) that it will book a loss of $621 million in the third quarter due to “substantial declines” in both equity markets and interest rates. Canada’s third-largest insurer observed that equity markets were exceptionally volatile with North American markets dropping 12 to 14% in the three months ended Sept. 30. Sun Life shares fell $2.38 or nine per cent to C$24.07.

“These are very difficult times and the market volatility hasn’t helped,” Warne said. “It’s disappointing, it’s certainly casing a pall over not just their stock but all the insurance stocks today.”

Elsewhere in the sector, Manulife Financial (TSX:MFC) lost 60 cents to $12.34.

Other commodity prices turned mainly lower with the November crude contract on the New York Mercantile Exchange down 42 cents at US$86.38 a barrel.

The energy sector was down two per cent as Suncor Energy (TSX:SU) moved down 93 cents to C$29.76.

The tech sector was also lower with Research In Motion (TSX:RIM) shares down $1.36, or 5.6%, at $22.90. The BlackBerry maker said Monday that it will offer its individual subscribers a selection of premium apps for free and its corporate customers free support for a month to show appreciation for customers’ patience during the recent worldwide service disruptions.

The stock was also under the gun after billionaire activist investor Carl Icahn said RIM “is not on our radar screen.”

RIM shares jumped late last month on speculation that Icahn may have taken a stake in RIM and that he would agitate for change in the company’s management and strategy.

The gold sector was down more than one per cent as the December gold contract in New York gave back $6.40 to US$1,676.600 an ounce. Barrick Gold Corp. (TSX:ABX) faded 48 cents to C$48.28 and Goldcorp Inc. (TSX:G) fell 75 cents to $48.09.