The S&P/TSX composite index dropped 159.8 points to 12,377.9, led by sliding gold stocks as improving sentiment about the U.S. economy and a higher U.S. dollar continued to punish gold prices. The April bullion contract in New York tumbled $51.30 to US$1,642.10 an ounce.
The TSX was also hit with sharp declines in the base metals and energy sectors but analysts were at a bit of a loss to say what drove traders to take more profits from a rally that started back in October but started to stall out two weeks ago.
"There doesn’t seem to be anybody who is talking about a justifiable reason why we’re down but at the same time they haven’t got a justifiable reason why we should be going the other way," said Fred Ketchen, manager of equity trading at Scotia Capital.
"It’s period of indecision and I think we’re trying to find whether we stand in front of the bus or whether we go along behind the bus. At the moment, we’re just going along behind the bus — downhill."
The TSX Venture Exchange was down 33.03 points to 1,594.35.
Lower prices for oil and metals helped push the Canadian dollar down 0.39 of a cent to 100.7 cents US.
American markets were mainly higher amid news after the close Tuesday that all but four of 19 major U.S. banks passed a Federal Reserve "stress test" exercise.
They also got the green light to boost dividends and take other steps that will make their stocks more attractive to investors.
One notable exception was Citigroup, the third-largest bank in the United States. It was among the companies the Fed said lacked enough capital to withstand another severe economic and financial crisis and its stock was down four per cent in New York.
The Dow Jones industrials moved up 16.42 points to 13,194.1.
The Nasdaq added 0.85 of a point to 3,040.73 while the S&P 500 index edged 1.67 points lower to 1,394.28.
The gold sector lost about 3.75 per cent with Barrick Gold Corp. (TSX:ABX) down $2.04 to $42.88 while Agnico Eagle Mines (TSX:AEM) faded $1.52 to $33.39.
The energy sector fell 2.08 per cent as crude prices fell even as data showed a smaller than expected increase in inventories last week. The U.S. Energy Information Administration said crude supplies rose 1.8 million barrels, far less than the 2.1 million increase that analysts expected. Oil was down $1.28 to US$105.43 a barrel. Suncor Energy (TSX:SU) fell $1.29 to C$32.75 while Talisman Energy (TSX:TLM) dropped 49 cents to $13.
Metal prices were lower with copper down five cents to US$3.85 a pound, sending the base metals sector down 3.11 per cent. Teck Resources (TSX:TCK.B) gave back $1.38 to C$35.15 while Ivanhoe Mines (TSX:IVN) was off 42 cents to $17.87.
Canadian banks didn't benefit much from the stress test results but strong gains in insurers pushed the TSX financial sector up 0.61 per cent with Manulife Financial ahead 84 cents or 6.64 per cent to $13.49 on very heavy volume of 18.4 million shares. Sun Life Financial (TSX:SLF) gained 97 cents to $22.61, also on higher than usual volume of 5.2 million shares.
The shares rose as investors felt better about the pace of the U.S. economic recovery in the wake of a strong retail sales report for last month. Also, the U.S. Federal Reserve said that strains in global financial markets have eased, household and business spending have continued to advance and labour conditions have continued to improve.
Also, bond yields moved higher on Wednesday with the U.S. 30-year bill up 0.15 of a point to 3.42 per cent.
"That makes a difference, particularly for insurers," Ketchen said.
"Yields of both Canadian and U.S. bonds are stronger and when you get down to the bottom line, that certainly gives a tonic to insurers because they’re not as pinched on their returns when we get this kind of a situation."
Insurers’ shares have been battered since the 2008 financial crisis on a combination of low equity returns and interest rates at or near historic lows.
The good news has left the Dow industrials at its highest level since the end of 2007 and up about eight per cent year to date.
The resource-heavy TSX has lagged New York's performance. The main index is up about 3.5 per cent year to date and down about 2.8 per cent from the highs of this year.
New York also outperformed the TSX for 2011, which Gavin Graham, president of Graham Investment Strategy, said dddn't follow with what was expected.
"The reason we underperformed (in 2011) was worries about economic growth and the European debt crisis in the second half of last year," he said.
"Given that (those concerns have) been put to bed, for the moment at least, and given that we’ve had a pretty decent run since the lows of October, you would anticipate the TSX doing better but that’s not been the case."
On the earnings front, shares in Mega Brands (TSX:MB) tumbled $1.48 or 18.78 per cent to $6.40 after the toymaker reported that profits were hurt in the fourth quarter as holiday sales came in lower, particularly in the United States. Net income declined to US$234,000 from US$11.3 million a year earlier. On a per share basis, the results were equal to a loss of 14 cents per share versus a profit of 17 cents per share a year earlier.