11/16/2011 08:35 EST | Updated 01/16/2012 05:12 EST

TSX heads for lower open amid falling commodities, higher Italian bond yields

TORONTO - The Toronto stock market closed lower as concerns lingered about Europe's debt crisis, but the TSX found support from energy stocks as oil surged past the US$100 mark to its highest level in more than five months.

The S&P/TSX composite index lost 54.91 points to 12,174.36 while the TSX Venture Exchange slipped 14.27 points to 1,633.22.

"If there is anything surprising to me is that the equity markets on the North American side have hung in despite what’s been happening in the (European) credit markets, which typically makes me nervous," said Mark Boyko, portfolio adviser, U.S. and International Equities, at RBC Dominion Securities.

"These negative headlines coming out of Europe are probably as bad as they can be and yet the equity markets are not at a low here. We’ve actually been flat for the month of November."

Surging oil prices failed to help the Canadian dollar, which closed down 0.2 of a cent at 97.76 cents US. It had gone as low as 97.21 cents US in the morning as worries about Europe's government debt crisis continued to absorb investors and sent traders to the perceived safe haven of U.S. Treasuries.

Losses on U.S. markets picked up after ratings agency Fitch warned that the eurozone debt crisis poses a threat to U.S. bank ratings and investors also considered how the recent, rapid rise in oil prices could affect the economic revival. Oil has surged 10 per cent so far this month.

The Dow Jones industrial index fell 190.57 points to 11,905.59. The Nasdaq composite index lost 46.59 points to 2,639.61 and the S&P 500 index was down 20.9 points to 1,236.91.

The TSX energy sector gained almost one per cent as the December crude contract on the New York Mercantile Exchange jumped $3.22 to US$102.59 a barrel, its highest close since June 2. The gain came amid signs of lower U.S. inventories and improving economic data, such as Tuesday's release of a better than expected retail sales report for October.

Higher crude was also supported by a deal involving Enbridge Inc. (TSX:ENB) that will see the pipeline company pay US$1.15 billion to buy half ownership of a U.S. pipeline system. Enbridge said the direction of crude oil flows in the Seaway pipeline will be reversed to enable it to transport oil from the main oil supply hub at Cushing, Okla., to the Gulf Coast. That would help unclog a glut of supply at Cushing, which has recently driven down the price for oil.

Enbridge shares gained nine cents to $34.91.

Suncor Energy (TSX:SU) gained 49 cents to $32.75 while Imperial Oil (TSX:IMO) ran up 31 cents to $42.45.

Meanwhile, attention was again focused on Italy as the country's new prime minister, respected economist Mario Monti, formed a government made up of bankers, diplomats and business executives to steer Italy away from financial disaster.

However, bond markets continued to demand high interest rates on the country's bonds. The yield on Italy’s benchmark 10-year bond jumped back to around the seven per cent mark Wednesday, a level widely viewed as unsustainable.

It is also a level that in the recent past forced other heavily indebted countries such as Ireland, Portugal and Greece to seek bailouts. However, Italy is the eurozone's third largest economy and, with debts equal to 120 per cent of gross domestic product, it is widely viewed as too big to bail out.

"I think it comes down to the European Central Bank," said Boyko, referring to calls by other analysts and economists for the ECB to declare itself the lender of last resort, something the central bank is loath to do.

"Investors are looking for a message from the ECB to give them any sort of conviction that things are changing."

Research in Motion (TSX:RIM) also helped lift the Toronto market. Its shares were up 15 cents to $19.69 after brokerage firm Goldman Sachs raised its rating on the shares of the BlackBerry maker to neutral from sell. Goldman Sachs analyst Simona Jankowski said in a note to clients that she was upgrading RIM as its current valuation already fairly captures the fundamental concerns surrounding the stock.

The Goldman upgrade comes a day after Northern Securities raised its rating on RIM's shares to a speculative buy from a sell, sending RIM stock up about five per cent.

Mining stocks were also weak as several commodity prices were lower, reflecting a higher greenback and worries about lower demand if Europe lands back in recession and stalls the global economic recovery.

A stronger greenback usually helps depress commodity prices, which are denominated in dollars, as it makes oil and metals more expensive for holders of other currencies.

The base metals sector declined three per cent as the December copper contract on the Nymex eased a penny to US$3.49 a pound. Teck Resources (TSX:TCK.B) fell $1.45 to C$37.45 while First Quantum Minerals (TSX:FM) lost 46 cents to C$18.59.

The gold sector fell more than one per cent as the December gold contract gave back $7.90 to US$1,774.30 an ounce. Barrick Gold Corp. (TSX:ABX) faded 77 cents to C$52.65.

The industrials sector was also a weight, down 1.06 per cent as Canadian National Railways (TSX:CNR) shed $1.15 to $79.13 and Canadian Pacific (TSX:CP) lost $1.01 to $61.51.

The telecom sector was also weak, down 0.8 per cent with Telus Corp. (TSX:T) down 43 cents to $53.67.

Investors also took in earnings news from two of Canada’s biggest grocers.

Loblaw Companies Limited (TSX:L) said its third-quarter profit was up 19.8 per cent from the same time last year, rising to $236 million or 84 cents per share. Revenue at the country’s largest grocery company was also up, growing two per cent to $9.7 billion and its shares declined 75 cents to $37.61.

Metro Inc.’s (TSX:MRU.A) fourth-quarter net earnings dropped 7.8 per cent to $86.1 million as it booked closure costs for the operations of a meat processing plant in Montreal and a grocery warehouse in Toronto. Sales grew to $2.66 billion from $2.56 billion and Metro shares gained $1 to $50.50.

In other corporate developments, Caisse de depot et placement du Quebec is buying a 16.55 per cent interest in Colonial Pipeline Co. and Colonial Ventures LLC from ConocoPhillips (NYSE:COP) for US$850 million.