The S&P/TSX composite index rose 113.4 points to close at 11,955.09 in the last day of 2011 trading on Canada's dominant stock exchange.
After early 2011 gains, the TSX dropped 11 per cent in value over the year, pushed down by falling mining, energy and tech stocks.
Early year hopes for strong gains in share prices eroded by the summer as investor sentiments were battered by the European debt crisis, growing recession fears and a slowdown in the Chinese economy.
"The best way of describing it is, it was an inverted V," said Norman Raschkowan, North American strategist at Mackenzie Financial Corp.
"We’re so used to talking about a V shaped recovery for the economy and this time we had exactly the opposite for the markets. We started off with so much optimism and enthusiasm and markets headed north and we had a very strong first quarter and gave it back and then some."
In other Canadian markets Friday, the TSX Venture Exchange rose 23.11 points to 1,484.66. Meanwhile, the Canadian dollar closed up 0.37 of a cent at 98.33 cents US, down 2.21 cents this year
Performance of the loonie has suffered amid a slowing Canadian economy while a worsening eurozone government debt crisis has elevated risk and sent traders to the perceived safe haven of U.S. Treasuries.
U.S. markets were lower with the Dow industrials down 69.48 points to 12,217.56. The Nasdaq composite index dipped 8.59 points to 2,605.15 while the S&P 500 index was off 5.42 points at 1,257.6.
While the TSX dropped 11 per cent on the year, the market was down almost 17 per cent from the market's 2011 high in early March.
On Friday, the TSX energy sector rose one per cent with the February contract on the New York Mercantile Exchange down 82 cents at US$98.83.
Crude has traded near US$100 since mid-November after jumping from $75 in October amid evidence the U.S. economy could avoid a recession next year. Prices are up 8.15 per cent this year but worries about slowing economic conditions have pushed the TSX energy sector down 16.7 per cent.
Canadian Natural Resources (TSX:CNQ) advanced 64 cents to C$38.12 while Cenovus Energy (TSX:CVE) was ahead 64 cents to $33.87.
Copper prices headed higher at the end of a punishing year for the metal, which is viewed as a key economic barometer because it is widely used in infrastructure projects and consumer products. The March contract on the Nymex gained seven cents to US$3.44 a pound. But the metal has tumbled almost 23 per cent over the year while Toronto's base metal sector has plunged 27 per cent.
On Friday, the base metals sector was ahead 1.5 per cent with Teck Resources (TSX:TCK.B) up 64 cents at C$35.85 while First Quantum Minerals (TSX:FM) gained 70 cents to $20.04.
The gold sector was up about 0.6 per cent as gold prices ratcheted higher after six days of declines, with the February contract in New York ahead $25.90 to US$1,566.80 an ounce, pushing the price of the metal up about one per cent during 2011. The precious metal hit a record high of more than US$1,900 during the year as traders sought safe havens amid worries about higher inflation and the future of the euro.
Analysts say that a strengthening U.S. dollar, continuing turmoil in Europe and investment funds selling their positions after the earlier run-up have all contributed to the decline in gold prices. Gold stocks have also been hammered with the TSX's global gold index down about 14.5 per cent.
Goldcorp Inc. (TSX:G) improved by 74 cents to C$45.16 and Franco Nevada Gold Corp. (TSX:FNV) faded 47 cents to $38.78.
The financials sector climbed 1.13 per cent as TD Bank (TSX:TD) advanced $1.04 to $76.29 while Royal Bank (TSX:RY) rose 47 cents to $51.94. But the sector also lost ground amid slipping economic growth, down almost eight per cent on the year.
A major loser on the TSX was Research In Motion Ltd. (TSXL:RIM). The stock closed up 15 cents to $14.81. But that's a long way from RIM's 52-week high of $69.30 as the smartphone giant missed profit estimates and delayed key products.
The TSX industrials sector was up almost two per cent Friday. The Globe and Mail reported that the largest shareholder of Canadian Pacific Railway Ltd. (TSX:CP) is courting former Canadian National Railway (TSX:CNR) boss Hunter Harrison to shake up CP's management and improve its performance. The Globe reports Bill Ackman, who has recently amassed a 14.2 per cent stake in CP, has approached Harrison as a replacement for CP chief Fred Green. CP shares gained $2.47 to $68.99 while Canadian National improved by $1.15 to $80.06.
The TSX appears set to encounter severe headwinds next year, including a slowing economy in China and other emerging markets.
The latest indication of that came Friday when HSBC reported its China Purchasing Managers' index for the manufacturing sector stood at 48.7 in December, which was slightly better than the 47.7 reading for November. But on a quarterly basis, the survey was the weakest since the first quarter of 2009.
China has been an important prop for the fragile global economic recovery, supporting commodity prices and energy and mining stocks on the resource-heavy TSX. But growth has slowed this year as the Chinese government discouraged lending in order to control high inflation.
A slowing Chinese economy is just one of the headwinds the TSX will have to contend with in 2012.
The eurozone government debt crisis has already pushed some areas into recession while markets grow increasingly frustrated at what they see as the lack of a credible plan to deal with heavily indebted countries such as Italy, which are deemed to large to bail out.
"The real question becomes, do the politicians see what everyone else does and actually recognize the need to recapitalize the banking system (to weather a possible default and) re-establish confidence," said Raschkowan.
"You need the governments to essentially bolster the (banks’) capital base, whether they inject common equity and dilute down existing common shareholders . . . or do it by purchasing preferreds and leaving the common shareholders intact."
He said the other part of the solution is having the European Central Bank step up "just as the U.S. Federal Reserve did, and support the bond markets for all of the European nations."
The Dow industrials, which unlike the TSX isn't commodity heavy, was the star in U.S. markets in 2011, up 5.5 per cent for the year.
The Standard & Poor’s 500 index closed flat for the year while the Nasdaq fell 1.8 per cent for the year.
Other markets around the world chalked up miserable results.
The FTSE 100 index of leading British shares ended the year 5.6 per cent lower, Germany’s DAX sustained a 14.7 per cent decline over the year and France's CAC-40 ended the year down about 17 per cent from where it started.