The S&P/TSX composite index was down 74.89 points to 12,464.32 amid some negative U.S. housing and jobs data while the TSX Venture Exchange rose 10.73 points to 1,614.77.
The financials sector was the major decliner, down 1.67 per cent after UBS downgraded two of the big insurers, Manulife (TSX:MFC) and Sun Life (TSX:SLF) to neutral from buy. The bank said that low interest rates and higher hedging costs will continue to hurt growth, earnings, capital and valuation.
Manulife closed down 64 cents at $11.91 while Sun Life lost $1.06 to $20.05.
The Fed announced Wednesday that it would keep interest rates near zero until late 2014 in a sign that the U.S. economy needs considerable support for some time to come.
Federal Reserve chairman Ben Bernanke continued to describe the recovery as "fragile," but markets responded positively to the news on Wednesday with the TSX rising 144 points.
"It's the disconnect of the stock market from the economy," said James Muir, director at Fraser Mackenzie.
"Because the U.S. stock market is multinational corporations and the reality is the world is still growing — the world, not the U.S., not euroland but the world — and these companies based in the U.S. are world-class companies and enjoying incredible profitability. And when interest rates are going to be kept low for them, then they will be even more profitable."
The Canadian dollar rose 0.18 of a cent to 99.83 cents US. The loonie earlier went as high as 100.05 cents US as the Fed move encouraged traders to take on more risk.
U.S. markets also weakened with the Dow industrials down 22.33 points to 12,734.63.
The Nasdaq fell 13.03 points to 2,805.28 and the S&P 500 index slipped 7.6 points to 1,318.45.
Stocks traded broadly higher until mid-morning, when the U.S. government reported an unexpected drop in new home sales in December, capping the worst year for home sales on records dating to 1963. The decline underscored the housing market’s continued drag on the American economy.
Other data showed that the number of people seeking unemployment benefits rose last week to a seasonally adjusted 377,000 after a nearly four-year low the previous week.
Prices for oil and metals ran up smartly on Thursday with the February crude contract on the New York Mercantile Exchange ahead 69 cents to US$100.09 a barrel. But the TSX energy sector lost early momentum and was down 0.86 per cent as Talisman Energy (TSX:TLM) declined 35 cents to C$11.90 while Imperial Oil (TSX:IMO) lost 68 cents to $47.03.
The mining sector was down 0.34 per cent as the March copper contract in New York gained seven cents to US$3.90 a pound. Copper prices have surged about 13 per cent in January amid signs of an improving economic conditions in the U.S. and China, which is the world's biggest consumer of copper. The metal has a reputation as an economic bellwether since it is used in so many businesses. Ivanhoe Mines (TSX:IVN) shed 31 cents to C$17.36 while Teck Resources (TSX:TCK.B) gained 41 cents to $42.88.
The gold sector climbed about 0.85 per cent as February bullion was up $26.60 at US$1,726.70 an ounce. Barrick Gold Corp. (TSX:ABX) improved by 39 cents to C$48.99 while Goldcorp Inc. (TSX:G) advanced $1.04 to $48.75.
There was also positive news out of Europe.
Italy easily raised €5 billion from the markets Thursday in a pair of bond auctions that saw a sharp drop in borrowing rates. The sale showed healthy investor appetite in the first test of market sentiment since ratings agency Standard & Poor's on Jan. 13 dropped Italy's credit rating by two notches.
And Greece resumed talks with its private creditors in order to get a deal to avoid a potentially disastrous default.
The €100-billion private debt writedown is a vital condition of a new bailout for Greece, which has been relying on international rescue loans since May 2010.
Under the deal, banks and other private sector investors would swap their Greek government bonds for new ones with half the face value, longer repayment deadlines and potentially lower interest rates.
If the writedown fails, Greece will be unable to repay a €14.5-billion bond on March 20.
It was also a busy earnings day for Canadian companies.
Canadian Pacific Railway Ltd. (TSX:CP) reported fourth-quarter net income of $221 million, an increase from $186 million in the same period a year earlier. Revenue grew to $1.4 billion from $1.29 billion and its shares were unchanged at $71.65.
Potash Corporation of Saskatchewan Inc. (TSX:POT) said its profits grew in the fourth quarter to US$683 million or 78 cents a share from $508 million a year ago. However, earnings were 11 cents per share short of expectations. Sales grew to $1.87 billion from $1.81 billion.
Shares in PotashCorp, which also announced a doubling of its quarterly dividend to 14 cents US, added 51 cents to $45.99.
Forest products company Tembec (TSX:TMB) expects its quarterly results will improve for the rest of the year after net losses surged in the first quarter because of internal maintenance downtime and unexpected global pulp price declines. Tembec turned in a $16-million loss for the quarter and its shares fell 21 cents to $3.26.
Elsewhere, Caterpillar reported that its fourth-quarter profit jumped 60 per cent to US$1.55 billion, boosted by a steep increase in global demand for its products. The world's largest maker of construction and mining equipment reported sales and revenue jumped 24 per cent to $17.24 billion and also issued 2012 guidance above analyst predictions. Its shares gained $2.30 to US$111.35.