08/05/2011 08:23 EDT | Updated 10/05/2011 05:12 EDT

TSX tumbles 218 points as U.S. jobs report fails to calm investors

TORONTO - The Toronto stock market was down sharply Friday as a stronger than expected U.S. jobs report failed to reassure investors already worried about a slowing American economy and a lack of leadership in coming to grips with the European debt crisis.

It was another whipsaw session, with the S&P/TSX composite index tumbling 217.96 points to 12,162.17, after having plummeted almost 500 points earlier in the session.

Friday's losses, a day after the TSX racked up its biggest single-session decline in more than two years on Thursday, were led by sliding resource stocks amid investor sentiment that slowing economic conditions will heavily impact demand. It added up to a loss of six per cent or 783 points this week, leaving the TSX down almost 10 per cent year to date.

"Investors are still a bit concerned about the slowdown in global growth and the worries that Europe may not get its arms around what looks like continuing problem with the size of debt," said Kate Warne, Canadian markets specialist at Edward Jones in St. Louis.

"As a result, we're seeing declines in resource prices and particularly resource stocks, which are very heavy in the TSX."

And there are sure to be more jitters ahead. Late Friday, Standard & Poors said it had downgraded the United States' credit rating for the first time in history. It slashed the country's top AAA rating by one notch to AA-plus. It said it made the move because the deficit reduction plan passed by Congress on Tuesday did not go far enough to stabilize the country's debt situation.

Earlier Friday, markets moved off the worst levels of the session as Italy pledged to work for a constitutional amendment requiring the government to balance its budget in 2013, a year before previously scheduled. Also, Premier Silvio Berlusconi announced that G-7 finance ministers will meet “within days” to talk about the European government debt crisis.

His heavily-indebted country has been the latest target of a lack of confidence by investors as Italy’s borrowing costs rose above Spain’s for the first time in more than a year.

Italian and Spanish bonds have traded this week at levels that threaten the ability of those countries to raise money in the bond markets to pay off debt.

The junior TSX Venture Exchange was off 41.84 points to 1,811.49.

It had been hoped that a decent jobs number from the U.S. would lessen anxiety about the state of the influential American economy.

But the announcement that 117,000 were created in July was simply not enough to brighten investors' mood, said Andrew Pyle, investment adviser with ScotiaMcLeod in Peterborough, Ont.

"These aren't great numbers, right?," Pyle said.

"They're not amazing numbers, not amazing headlines — when was the last time we got excited over a 117,000 increase in jobs?"

Still, the rise in July was higher than the approximately 80,000 jobs that economists expected. Also, the jobless rate edged down 0.1 per cent to 9.1 per cent.

There was more good news: data also showed that the economy created 56,000 jobs more than originally thought.

The data came out a day after pessimism over the U.S. economy and the big debt problems facing eurozone countries had pushed the TSX down 436 points.

The Canadian dollar closed Friday ahead 0.15 of a cent at 102.24 cents US, shedding early losses as the greenback weakened on reports of the Italian reforms.

Traders also took in data showing that Canadian job growth for July came in at 7,100. That was less than half what economists had expected, but analysts pointed out that the details of the report were more encouraging.

"Full-time jobs rose 25,500 and private sector employment rocketed a massive 94,500, more than offsetting a big drop in public sector jobs," observed BMO Capital Markets deputy chief economist Doug Porter.

Also, the jobless rate declined 0.2 of a per cent to 7.2 per cent, the lowest since the end of 2008 and down from eight per cent a year ago.

Magna International Inc. (TSX: MG) was a big TSX loser, as its shares fell $5.17 or 11.76 per cent, to $38.80 after it reported net income of $282 million in the second quarter, or $1.15 per share — far below the $1.32 a share that analysts expected.

Oil prices turned around following the U.S. jobs report after slumping this week because traders felt slowing economic conditions would crimp demand.

The energy sector fell 2.46 per cent as the September oil contract on the New York Mercantile Exchange gained 25 cents to US$86.88 a barrel after plunging more than $5 Thursday. Oil tumbled about US$8 this week.

Suncor Energy (TSX:SU) declined 78 cents to C$32.34 and Canadian Natural Resources (TSX:CNQ) was down 94 cents at C$35.25.

The mining sector lost 2.56 per cent as the September copper contract fell 12 cents to US$4.12 a pound. Teck Resources (TSX:TCK.B) lost $1.28 to C$41.62 while Lundin Mining (TSX:LUN) fell 34 cents to C$5.33.

Gold stocks were weak as the December bullion contract lost $7.20 to US$1,651.80 an ounce. But nervous investors drove the previous metal 1.3 per cent higher this week. Barrick Gold Corp. (TSX:ABX) faded 49 cents to C$44.89 while Goldcorp Inc. (TSX:G) gained 49 cents to C$44.89.

Financials were also a drag with Royal Bank (TSX:RY) down 69 cents at $50.04 while CIBC (TSX:CM) dropped $1.22 to $70.

The Dow Jones industrials gained 60.93 points to 11,444.61.

The Nasdaq composite index lost 23.98 points to 2,532.41 and the S&P 500 index dipped 0.69 of a point to 1,199.38.

In earnings news, shares in Telus Corp. (TSX:T), Canada's second biggest telecom operator, were up 35 cents to $51.63 after it raised its revenue guidance. It also reported net profits in the second quarter rose to $324 million or 99 cents a share from $302 million or 94 cents a year ago.