TSX extends weekly decline, loonie rally ebbs as economic outlook dims

TORONTO (Reuters) - Canada’s main stock market fell and the loonie gave back much of its earlier gains on Friday, with both down sharply for the week, as global efforts to contain the spread of the coronavirus pandemic weighed on the economic outlook.

Slideshow ( 2 images )

New York and California imposed tough new restrictions, limiting the activity of 60 million people in the two states to curb the spread of the virus, while Canadian Prime Minister Justin Trudeau said that he expected the closure of the U.S.-Canada border to take effect overnight.

Canada is set to ramp up borrowing as Ottawa’s C$27 billion stimulus package, announced this week to stave off a potential recession, blows out the fiscal deficit, market strategists said.

The Toronto Stock Exchange's S&P/TSX composite index .GSPTSE closed down 2.6% at 11,851.56. For the week, the index was down 13.6%, its fifth straight weekly decline.

The materials group .GSPTTMT shed 5.7% on Friday as shares of gold miners declined, while the heavily weighted financials sector was down 3.6%.

Six major central banks announced a coordinated action to enhance liquidity in the U.S. dollar by increasing the frequency of their currency swap operations. That initially helped the loonie but the pause in the scramble for the greenback was short-lived.

“We’re giving back the gains in NY trade today as the Fed goes berserk with even more emergency measures,” said Erik Bregar, head of FX strategy at Exchange Bank of Canada. “You know it’s bad out there in short-term money markets when they have to keep coming out like this.”

The Canadian dollar CAD=D4 strengthened 0.7% to 1.4414 per U.S. dollar, or 69.38 U.S. cents. The currency, which on Thursday hit a four-year low at 1.4669, traded in a range of 1.4150 to 1.4538.

For the week, the loonie was down 4.2%, its biggest decline since September 2011.

The price of oil, one of Canada's major exports, fell as global demand dried up due to the virus. U.S. crude oil futures CLc1 settled 10.7% lower at $22.53 a barrel.

Speculators have raised their bearish bets on the Canadian dollar, data from the U.S. Commodity Futures Trading Commission showed.

Canadian government bond yields fell across a flatter yield curve in sympathy with U.S. Treasuries. The 10-year yield CA10YT=RR was down 11.6 basis points at 0.882%.

Canadian retail sales grew by 0.4% in January from December, Statistics Canada said. Analysts had forecast a 0.3% increase.

Reporting by Fergal Smith; editing by Cynthia Osterman