Toronto stocks seen down in 2008 on U.S. economic woes

TORONTO (Reuters) - Canada's main stock market index is expected to show a loss this year for the first time in six years, amid continuing fallout from the credit markets crisis and the stumbling economy south of the border, a Reuters poll showed.

The Toronto Stock Exchange's S&P/TSX composite index .GSPTSE is expected to end 2008 at 13,375, 3.3 percent above its close of 12,952.15 on Monday, according to the median forecast of 14 equities analysts polled last week.

The end-year forecast is down 3.3 percent from where the index ended 2007 at 13,833.06 while the median anticipates the index to be at 13,150 at the end of June. The TSX is off over 6.4 percent so far this year.

The forecasts were taken over the period March 10-14, before JPMorgan Chase bought Bear Stearns at the weekend in a move which sent shockwaves through financial markets on Monday.

Most analysts said they are expecting the year to end below where it started, amid continuing credit market troubles as well as concern over the outlook for the economy in the United States, Canada's biggest trading partner.

The year-end forecast would make for the first downturn Bay Street has seen since the current bull run began in 2003.

"If (global financial institutions) are going to be struggling and if we're going to have a credit crunch, which is a consequence, it's very hard to justify above-average economic growth and earnings growth in that environment," said Elvis Picardo, investment strategist at Northern Securities Inc., in Vancouver.

"We've been thinking that this mess would be confined south of the border but that hasn't really been the case and I think that's what's caused a lot of concern in Canada."

The banking sector has taken the brunt of the losses so far and looks likely to continue to be dragged down by the economic woes, as well as the possibility of more writedowns related to subprime mortgages on both sides of the border.

"We expect to see the credit issues continue to get worse over the next quarter (and) economic indicators to continue to be weakish through the second quarter," said Paul Taylor, chief investment officer at BMO Harris Investment Management Inc.

"But then (in) the later half of the year we start to see some basing in economic data and the market starting to anticipate a turn."

Taylor said actions already taken by the U.S. Federal Reserve to boost liquidity in capital markets, as well as the fiscal stimulus package from the White House will start to have an effect by the third quarter.

Analysts are also expecting continued interest rate cuts from the Fed -- perhaps as much as 1 percentage point on Tuesday -- and the Bank of Canada to inject some optimism into the market.

On the upside, the heavy weighting in resource stocks is likely to continue to be a bright spot for the index, amid soaring commodity prices, analysts said.

So far this year, shares in gold producers have risen 22 percent while the metal price has surged to hit the highly-anticipated level of $1,000 an ounce.

"There is some downside risk in the near term but I think with the U.S. economy showing signs of recovery in the latter half of the year it's going to firm up the metals markets again," said Tim Burt, president and chief investment officer at Cardinal Capital Management Inc in Winnipeg, Manitoba.

(Additional reporting by Jonathan Spicer; Editing by Greg Mahlich)