09/30/2011 08:37 EDT | Updated 11/30/2011 05:12 EST

Stocks set to open lower, traders happy to see last of dismal third quarter

TORONTO - Resource stocks led declines on the Toronto stock market Friday as investors ended the third-quarter in a pessimistic mood about the pace of economic recovery and the outcome of the European debt crisis.

The S&P/TSX composite index dropped 62.48 points at 11,623.84 with losses held in check by rising gold stocks and higher bullion prices while the TSX Venture Exchange gave back 15.05 points to 1,467.17.

"It’s been a difficult third quarter certainly from a performance standpoint," said Don Reed, president and CEO of Franklin Templeton Investments Corp.

"And a lot of it is on the back of the (government) debt situation in Europe."

A stronger U.S. dollar and falling commodity prices pushed the Canadian dollar lower as traders took in data showing the economy registered a modest gain in July.

Statistics Canada says gross domestic product rose 0.3 per cent, which met economist expectations. The rise followed a 0.2 per cent increase in June and translated into annualized growth of 2.3 per cent.

The loonie dropped 1.07 cents to 95.4 cents US. The U.S. dollar strengthened amid another round of doubt that European officials can find a solution to the government debt crisis.

U.S. markets chalked up sharp losses as the Dow Jones industrials lost 240.6 points to 10,913.38.

The Nasdaq composite index fell 65.36 points to 2,415.4 while the S&P 500 index dropped 28.98 points to 1,131.42.

Negative sentiment over recovery prospects and doubt that Greece can avoid a default have made for a tough July-September quarter with the TSX down 12.6 per cent while the Dow industrial average has fallen about 12.1 per cent.

The TSX is also about 19 per cent below the highs of the year from early March.

Investors worry that the global economy is slipping into recession, which would reduce demand for oil, copper and other commodities that Canada produces. That would weaken exports and profits and further depress share prices on the resource heavy TSX.

Those worries were underscored Friday by Scotiabank’s Commodity Price Index, which fell by 3.3 per cent month over month in August.

Patricia Mohr, vice-president of economics and commodity market specialist at Scotiabank, noted that prices "fell amid eurozone debt challenges and the political gridlock in the United States, which threatened to undermine steps to bolster the economy."

But she also noted that "China's economy — of vital importance to global commodity markets — also appears to be slowing, leading to some unwinding of commodity positions by financial institutions."

There was another sign of softness in the American economy. The U.S. Commerce Department reports that incomes dropped by 0.1 per cent in August, the first decline in nearly two years. And consumer spending rose just 0.2 per cent during August, after a 0.7 per cent gain in July.

Most of the increase in spending went to pay higher prices for food and gas. When adjusted for inflation, August consumer spending was flat.

The European debt crisis has weighed heavily on markets recently over fears that Greece is on the brink of a default. That could send shock waves through the global economy, particularly in Europe, and wreak havoc on the continent’s banking sector.

The energy sector fell 1.7 per cent as a stronger U.S. dollar helped push crude to its lowest close in a year with the November contract on the New York Mercantile Exchange down $2.94 to US$79.20 a barrel. Economic worries have pushed crude prices have tumbled almost 17 per cent in the past three months.

Suncor Energy (TSX:SU) lost 95 cents to C$26.76 and Canadian Natural Resources (TSX:CNQ) was down 75 cents to $30.77.

The base metals sector fell 2.48 per cent as copper prices continued to retreat, down another nine cents to US$3.15 a pound after closing Thursday at its lowest level since August 2010. Copper is widely considered a proxy for the overall economy but sliding demand prospects have slashed prices by 26 per cent during the third quarter.

Teck Resources (TSX:TCK.B) added 20 cents to $30.92 as it announced it has a tentative agreement with union members at its Highland Valley Copper Operations in B.C., which is the largest copper mine in Canada. The union had served strike notice on Teck on Thursday.

First Quantum Minerals (TSX:FM) lost 45 cents to $13.95 while HudBay Minerals (TSX:HBM) fell 64 cents to $9.77.

Railroad stocks fell alongside mining stocks as Canadian National Railways (TSX:CNR) lost 95 cents to $70.03 and Canadian Pacific Railway (TSX:CP) fell $1.20 to $50.52.

The financial sector also weighed on the TSX, down 0.72 per cent with Royal Bank (TSX:RY) down 35 cents to $48.06 and Scotiabank (TSX:BNS) fell 46 cents to $52.72.

The gold sector advanced about two per cent while the December contract in New York closed up $5 to US$1,622.30 an ounce. Gold is still up about 0.75 per cent for the quarter but is down from the record price for bullion of US$1,876.90 that was racked up in early September.

Barrick Gold Corp. (TSX:ABX) rose $1.10 to C$49.11 and Goldcorp Inc. (TSX:G) climbed $1.81 to $48.07.

In corporate news, copper producer Anvil Mining Ltd. (TSX:AVM) on Thursday received a $1.3-billion friendly takeover offer from Minmetals Resources, part of a vast China-based mining group that’s been on the hunt for base metal producers. Minmetals' offer amounts to $8 a share. Anvil shares surged $1.89 or 32.76 per cent to $7.66.

Photography pioneer Eastman Kokak has reportedly hired a firm that specializes in restructuring. The Wall Street Journal said Friday the battered company has signed up Jones Day, which advises companies on bankruptcy, along with other options for getting out of a financial squeeze.

The newspaper noted that Kodak drew $160 million from a credit line, raising fears that it is running out of cash. Kodak shares plunged 54 per cent to 78 cents US.