TSX lower, commodities fall on doubts about Fed stimulus plans, earns disappoint

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A man walks past a building in Toronto that used to house the Toronto Stock Exchange on August 18 2011. THE CANADIAN PRESS/Aaron Vincent Elkaim

TORONTO - The Toronto stock market closed lower Thursday as traders worry that the U.S. Federal Reserve will end its open-ended stimulus program of bond purchases by the end of the year.

The S&P/TSX composite index closed off the worst levels of the session, coming back from a 111-point tumble to close down 74.08 points to 12,639.97, with pressure also coming from poorly received earnings news. The TSX Venture Exchange added 2.8 points to 1,133.97.

The Canadian dollar lost 0.14 of a cent to a fresh seven-month low of 98.16 cents US as traders avoided risk and resource-based currencies such as the loonie and commodity prices fell sharply.

U.S. indexes were also in the red in the wake of the Wednesday release of minutes from the Fed’s last policy meeting.

They showed some policy-makers at the U.S. central bank were worried that the Fed's US$85 billion in monthly bond purchases could eventually unsettle financial markets or cause the Fed to take losses. The purchases, commonly known as quantitative easing, are designed to boost the U.S. economy by increasing liquidity in financial markets.

The Fed said it would review its asset purchases program at its March meeting.

But New York indexes also came back from the lows of the day as the Dow Jones industrials fell 46.92 points to 13,880.62 after losing as much as 93 points during the morning. The Nasdaq composite index dropped 32.92 points to 3,131.49 and the S&P 500 index was 9.53 points lower at 1,502.42.

Other minutes from recent meetings of the central bank had also signalled uneasiness by some members of the Fed with the bond purchase program.

"Some complacency may have set in," said Colin Cieszynski, market strategist at CMC Markets Canada.

"And just basically, people were saying OK, they will keep it for the whole year. Well, maybe they will, maybe they won't."

He thinks it’s reasonable to expect the Fed will probably keep the stimulus program going at the same level for at least six months.

"But beyond that, all bets are off because at the end of the year, you start running into the change of chairman."

Fed chairman Ben Bernanke’s term expires in January and he has expressed no desire to serve another term.

Positive news from the U.S. housing sector failed to make much of a dent on markets.

Sales of previously occupied homes rose in January to the second-highest level in three years, up 0.4 per cent in a sign the housing market is maintaining its recovery and helping to bolster the economy. Economists had looked for a decline of 0.8 per cent.

Traders flocked to the perceived safe haven of U.S. Treasuries following the release of the Fed minutes Wednesday, pushing the greenback higher and commodities lower.

A higher U.S. dollar pressures commodities because a stronger greenback makes it more expensive for holders of other currencies to buy oil and metals, which are dollar-denominated.

The base metals sector led decliners, down 2.47 per cent as copper prices closed down sharply for a second day with the March contract on the Nymex off five cents at US$3.55 a pound, adding to a four-cent fall Wednesday. HudBay Minerals (TSX:HBM) fell 72 cents to C$9.35 while First Quantum Minerals (TSX:FM) gave back 77 cents to $18.73.

Consumer discretion stocks fell 1.6 per cent. Tim Hortons Inc. (TSX:THI) is planning to increase its quarterly dividend by 23.8 per cent. It also said quarterly revenue was up 4.1 per cent to $811.6 million, less than half the growth rate of the year as a whole. Net income attributable to shareholders also fell, dropping 2.5 per cent from a year earlier to $100.3 million or 65 cents per share. Its shares dropped $1.50 to $49.30.

Canadian Tire Corp. Ltd. (TSX:CTC.A) says quarterly net income was $163.1 million or $2 per diluted share, down 1.9 per cent from a year ago. Revenue rose one per cent to $3.16 billion and the retailer’s shares rose 69 cents to $68.91.

The industrials sector fell 1.72 per cent with shares in Bombardier Inc. (TSX:BBD.B) down 39 cents or 9.11 per cent to $3.89 on very heavy volume of 26.6 million shares after it said fourth-quarter net income fell by US$200 million to just $14 million before adjustments, mostly due to weak results from its rail division. Ex-items, earnings were down $39 million or 17 per cent to US$188 million or 10 cents per share, which met expectations.

The energy sector fell 1.21 per cent while the April crude contract on the New York Mercantile Exchange lost $2.38 to US$92.84 a barrel on top of a $2 slide Wednesday.

Oil prices were also undercut by data showing U.S. oil inventories rose last week by a much more than expected 4.14 million barrels. Canadian Natural Resources (TSX:CNQ) was down 58 cents to C$29.99.

Financials were also weak as Bank of Montreal (TSX:BMO) declined 61 cents to $62.71.

The gold sector was the leading advancer, up about 1.3 per cent as gold prices surrendered earlier minor gains to move lower for a seventh straight day. The April contract edged closed down 60 cents to US$1,578.60 an ounce after closing at a seven-month low Wednesday. Iamgold Inc. (TSX:IMG) rose 28 cents to $7.85 while Kinross Gold (TSX:K) advanced 14 cents to $7.75 .

The latest declines in bullion prices were sparked by the Fed minutes because the central bank's quantitative easing has supported gold. That is because the bond buying program has encouraged worries about rising inflation and gold is seen as a hedge against rising prices.

"In terms of current inflation, it’s hard to see what anyone would be worried about," said a commentary from CIBC World Markets.

"CPI inflation has all but melted away, not only in the US, but across the developed world."

In other earnings news, grocer Loblaw Cos. Ltd (TSX:L) earned quarterly net income of $143 million or 48 cents per diluted share, compared with $174 million or 60 cents per share a year ago. Revenue rose 1.2 per cent to $7.46 billion from $7.37 billion. Its shares gained 67 cents to $40.42.