The S&P/TSX composite index lost 48.76 points to 12,188.64 after the U.S. Labour Department reported that the economy cranked out more than 200,000 jobs in December, against expectations of 155,000.
The U.S. jobless rate improved by 0.2 percentage points to 8.5 per cent.
The TSX Venture Exchange was ahead 8.27 points to 1,525.73.
The Canadian dollar was down 0.76 of a cent at 97.37 cents US amid a weak domestic employment report and a rising greenback.
Statistics Canada said that Canada's jobless rate edged up 0.1 percentage point to 7.5 per cent last month even as the economy racked up modest job gains.
The agency reported that Canada's economy created 17,500 jobs in December, following losses totalling 73,000 over the previous two months. But all the job gains were in the weaker categories of part-time and self-employment, whereas full-time work fell by 25,500 jobs.
U.S. markets were mainly lower with the Dow industrials down 55.78 points to 12,359.92. The Nasdaq composite index gained 4.36 points at 2,674.22 and the S&P 500 index declined 3.25 points to 1,277.81.
Expectations for U.S. employment growth picked up Thursday after private payrolls agency ADP said its own calculations for hiring gains were much stronger than forecast. ADP estimated that the U.S. private sector created 325,000 jobs in December. The Labour Department said Friday that the sector actually created 212,000 jobs last month.
Analysts noted a couple of weak points in the U.S. data.
Paul Ashworth, chief U.S. economist at Capital Economics noted that 42,000 of the job gains were in the couriers and messengers sector, which normally never adds or subtracts more than 1,000 jobs in any single month.
He said the labour data suggests that "this is a bigger than normal seasonal effect linked to the increased popularity of online holiday shopping."
Ashworth said unseasonably mild weather also appears to have been a factor, "which would help explain why construction sector employment apparently jumped by 17,000 last month."
Meanwhile, worries about the Eurozone government debt crisis are never far away and Italy caught traders’ attention Friday.
The country’s benchmark 10-year bond yield edged further above seven per cent, a borrowing rate that is considered unsustainable.
Traders also worried about the health of European banks, which are hurting due to fears that they will take big losses on their holdings of government debt and will struggle to raise new cash to plug those holes.
Trading in UniCredit, Italy’s largest bank, was halted on Thursday after the stock lost a quarter of its value in two days. The bank said Wednesday it would need to offer huge discounts to investors to raise money in a new share sale. The stock was down another 11 per cent on Friday.
Longer-term concerns about the euro and the region’s financial system pushed the common currency to US$1.2775 on Thursday. It worsened Friday, moving down to a 16-month low of $1.2723.
Worries about spreading bank problems pushed the TSX financial sector down 0.37 per cent with Royal Bank (TSX:RY) down 29 cents to $52.05 and Scotiabank (TSX:BNS) slipped 21 cents to $51.43.
The telecom sector was a major source of weakness, down 0.87 per cent with BCE Inc. (TSX:BCE) giving back 62 cents to $41.83.
Oil prices moved lower despite data showing a stronger U.S. economy.
Prices dropped as traders focused on European economic reports that showed weaker factory orders in Germany and soft retail sales elsewhere in November. The eurozone has struggled to overcome massive government debts, and many economists expect it will fall back into recession sometime this year.
February crude on the New York Mercantile Exchange down cents at US$101.34 a barrel. The energy sector backed off 0.56 per cent while Talisman Energy (TSX:TLM) gave back 73 cents to $12.68 but Imperial Oil (TSX:IMO) gained 36 cents to $46.58.
The gold sector was slightly lower as the February bullion contract shed $1.30 to US$1,616.80 an ounce. Goldcorp Inc. (TSX:G) faded 75 cents to $45.20.
The metals and mining sector was down 0.45 per cent while March copper was up one cent at US$3.44 a pound. Sherritt International (TSX:S) gave back 22 cents to $5.97 and Inmet Mining (TSX:IMN) lost $1.15 to $65.95.
The TSX ended the first week of 2012 trading up 234 points or 1.95 per cent, mainly racked up Tuesday in the wake of a stronger than expected reading on U.S. manufacturing and a surge in oil prices amid threats by Iran to close the Strait of Hormuz, the exit point for about a sixth of the world's oil exports.
On the corporate front, the Jean Coutu Group (TSX:PJC.A), Quebec’s largest drug store chain, reported net profits in its fiscal third quarter rose to $51.7 million or 23 cents a share. That compared with net earnings of $48.8 million or 21 cents a year ago. Revenue increased to $700.1 million from $681.1 million and its shares gained 38 cents to $13.22.
Potash Corp. of Saskatchewan (TSX:POT) has announced a four-week production shutdown starting next month at its Allan mine in the Saskatoon area. Its shares dropped $1.02 to $42.94.