Bay Street Week Ahead-No carefree summer for Toronto stocks

TORONTO, June 6 (Reuters) - Canadian equities investors can expect few lazy, carefree days this summer as North American economic concerns and volatility in commodity prices look likely to buffet Toronto stocks.

Analysts are bracing for further signs of weakness in Canada after news that the economy shrank for the first time in five years during the first quarter, while May job growth came in at the weakest pace so far in 2008.

To make matters worse, investors learned on Friday that the U.S. unemployment rate surged to its highest level in more than 3-1/2 years in May, with Canada's largest trading partner losing jobs for a fifth straight month.

The Toronto market's benchmark S&P/TSX composite index .GSPTSE does have a trump card, however, with its heavy weighting in oil and other resource issues. If commodity prices continue to surge, they could cushion any economic blows.

But even if the market's momentum leans to the upside, investors should buckle up for a bumpy ride, analysts say, because economic worries are mounting and swings in commodity prices, particularly oil, are likely to persist.

"Unfortunately, I would expect another volatile summer," said Kate Warne, Canadian market strategist at Edward Jones in St. Louis, Missouri.

That's "partly because there's so much uncertainty about the strength of global economic growth. There are worries about how much weaker Canada's economy will get, or whether the first quarter was an aberration."

On Friday, for example, the release of U.S. jobs data for May and the subsequent nearly 400-point swoon by the Dow Jones industrial average .DJI limited an advance by the TSX that was spurred by oil prices rising by more than $10.

Early in the session, the index logged a record high of 15,154.77, but investors ultimately saw both negatives as well as positives in crude's surge.

The Toronto index ended the day slightly lower, pulled down by financial and consumer stocks as worries surfaced over the impact of oil prices on consumer spending and the wider economy.

Resource shares -- which make up about half of the index -- usually track crude's movements, and a decline in prices can cause unsettling vacillations within the session. High crude also carries worrying implications for Wall Street, and that can complicate any calculations for Canada, whose economy is so closely linked to that of the United States.

The index was pushed and pulled by commodity prices this past week, including a roller-coaster session on Tuesday, when resource shares retreated alongside oil and gold prices to more than wipe out a gain of 100 points earlier in the day. On the whole, the TSX pushed higher through the week, adding 1.7 percent.

Lower interest rates have helped the market in recent months but most primary dealers don't expect the Bank of Canada to ease borrowing costs much further despite signs the economy is flagging. Expect a quarter-point cut to 2.75 percent on Tuesday but not much more this year, dealers told Reuters on Friday.

"The real question is what happens next rather than what happened in the first quarter," Warne said.

"A lot of people say, 'Sell in May and go away'," said Joe Ismail, technical analyst at Maison Placements Canada. "I think that old adage was maybe good 20 or 25 years ago." (Editing by Peter Galloway)