TSX drops nearly 2 percent, oil slide weighs on energy and financials

TORONTO (Reuters) - Canada’s main stock index fell on Monday as last week’s crude-induced rally fizzled out and a fall in oil prices weighed on energy companies and financial shares.

A man walks past an old Toronto Stock Exchange (TSX) sign in Toronto, June 23, 2014. REUTERS/Mark Blinch

The index scored its biggest rally in more than four years on Friday, closing 2.6 percent higher for the week. But optimism that central banks in Europe and Japan will increase policy stimulus gave way to concern about the growth outlook and renewed pressure on crude oil prices.

“There’s still a lot of uncertainty out there, said Bryden Teich, associate portfolio manager at Avenue Investment Management. “I think you are sort of seeing that filter back into the markets today.”

Oil prices recoiled 6 percent after news that Iraq’s output reached a record last month returned attention to a market glut that sent prices to 12-year lows last week.

Teich is cautious about the outlook for Canadian stocks in the expectation that oil will “test new lows.”

Canadian Natural Resources CNQ.TO fell 4.4 percent to C$24.91, while Suncor Energy Inc SU.TO was down 4.5 percent at C$29.92. The overall energy group fell 5.1 percent.

The oil price rout and related Canadian dollar slide is starting to hurt corporate profits, from rail and retail to seemingly unrelated sectors like telecoms.

Earnings are projected to fall by 28.3 percent in 2016 compared with a year ago, according to Thomson Reuters SmartEstimates data.

The Toronto Stock Exchange's S&P/TSX composite index .GSPTSE fell 246.42 points, or 1.99 percent, to 12,143.16. Eight of the index's 10 main groups were in negative territory.

Financial sector stocks, considered bellwethers for the overall economy, fell 2.6 percent.

Royal Bank of Canada RY.TO fell 3.4 percent to C$66.97, while Toronto-Dominion Bank TD.TO declined 3.0 percent to C$50.13.

Bank stocks have “a lot of commercial loan exposure to regular commercial business in Alberta,” according to Teich. Alberta’s economy is closely tied to crude oil prices.

Eldorado Gold Corp ELD.TO slumped 7.7 percent to C$2.98 after it said it expects to write down the value of its assets in Greece by $1.2-$1.6 billion after suspending most operations there.

Other gold miners rose as bullion gained.

Valeant Pharmaceuticals International Inc VRX.TO rose 5.5 percent to C$132.37. The company's ailing chief executive, Michael Pearson, said he was on the road to recovery but was uncertain about when he would return from medical leave.

The consumer staples group rose 0.4 percent, including a 0.7 percent gain for Loblaw Companies Ltd L.TO to C$65.25.

Additional reporting by Alastair Sharp; Editing by Tom Brown