October 21, 2008 / 4:10 PM / 11 years ago

UPDATE 2-Toronto stocks drop on commodities, rate move

* Energy and materials pressured by falling commodities

* Sun Life Financial sinks more than 7 percent

* Bank of Canada 25 bps rate cut less than expected (Adds details)

TORONTO, Oct 21 (Reuters) - The Toronto Stock Exchange’s main index dropped on Tuesday as easing commodity prices put pressure on resource issues and a Bank of Canada interest rate cut disappointed investors looking for a hefty chop in borrowing costs.

The oil and gas sector fell 2.8 percent as oil slipped to under $71 a barrel, pressured by expectations that a global recession will cut demand for oil, which could limit the impact of any supply cuts by OPEC.[ID:nSP339775]

Suncor Energy (SU.TO) was off 4 percent at C$29.27, while EnCana (ECA.TO) lost 3.5 percent to C$55.09.

The financial sector declined on disappointment that the Bank of Canada cut its key interest rate by a less-than-expected 25 basis points to 2.25 percent. [ID:nN21528331] Some had hoped the central bank would cut rates by a half-percentage point.

“Yesterday there was a lot speculation that the Bank of Canada would cut rates a half (point) today and that would be very positive for all financial markets,” said Douglas Davis, president of brokerage Davis-Rea. “The market is disappointed as they were thinking they’d cut a half.”

Sun Life Financial (SLF.TO) was a heavy loser in the financial sector as it moved forward its disclosure of results and reported a third-quarter loss. It also said it would maintain its dividend [ID:nN21283573]. The stock was down 7.4 percent at C$31.24.

The materials group dropped 4.8 percent on the falling price of gold [ID:nLL272021]. The gold mining subindex was off nearly 5 percent, as Kinross Gold (K.TO) fell 5.9 percent to C$13.44.

Shortly after 11:10 a.m. (1510 GMT), the S&P/TSX composite index .GSPTSE was down 192.04 points, or 1.9 percent, at 10,059.36, with eight of its 10 main groups lower. It dropped more than 300 points lower at market open. The decline follows two consecutive days of strong gains.

“I think the markets are going to be very volatile for the foreseeable future. Just because you have one good day doesn’t mean you have a trend. I don’t see any uptrend here yet,” Davis said.

“In order to form a market bottom, you need a lot of volatility. The market has got to make a decision as to where the bottom is. It may not have hit bottom yet. It probably has to test lower levels one more time.”

Research In Motion RIM.TO clawed back a small portion of its losses from the previous session, up 1.5 percent at C$65.89, even though Citigroup cut its share-price target for RIM RIM.TO. [ID:nWNAB9146] That cut comes a day after the BlackBerry maker’s shares dropped as much as 10 percent after a broker report was pessimistic on sales trends for its products.

$1=$1.20 Canadian Reporting by Ka Yan Ng, Jennifer Kwan and Frank Pingue; Editing by Peter Galloway

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