02/10/2012 09:59 EST | Updated 04/11/2012 05:12 EDT

Stocks close sharply lower as Greek bailout on hold, Chinese data disappoints

TORONTO - The Toronto stock market closed deep in the red Friday amid doubts as to whether Greece can muster the political will needed to comply with eurozone conditions that would allow it to secure a much-needed bailout in order to avoid bankruptcy.

The resource-heavy TSX was also under pressure following the release of disappointing economic data from China, a major buyer of commodities. The S&P/TSX composite index fell back 108.52 points to 12,389.42 while the TSX Venture Exchange dropped 11.27 points to 1,653.55.

The Canadian dollar was down sharply as traders avoided risky investments and bought into the safe haven status of U.S. Treasuries. The loonie fell 0.72 of a cent to 99.72 cents US.

U.S. markets were also negative with the Dow Jones industrials falling 89.23 points to 12,801.23. The Nasdaq fell 23.35 points to 2,903.88 and the S&P 500 index declined 9.31 points to 1,342.64.

Eurozone finance ministers are insisting that Greece has to save an extra €325 million in order to get a crucial €130-billion second bailout in time to avoid a bankruptcy next month that could send shockwaves around the financial markets.

A deal appeared to be secured on Thursday after Greek Prime Minister Lucas Papademos and heads of the three parties backing his government agreed to deep private sector wage cuts, civil service layoffs, and significant reductions in health, social security and military spending.

The finance ministers also insist that Greece pass the cuts through a restive parliament and guarantee in writing that they will be implemented even after planned elections in April.

The fresh demands on the Greek government took place amid violent clashes which broke out in central Athens during a 48-hour general strike called by unions to protest the European Union demands. And three more cabinet members resigned, bringing the total to four.

But analysts still thought an agreement will be arrived at because "the reality is if you have a social network that you can't afford now, then you will have a social network that you can't afford whether you go bankrupt or not," observed Gareth Watson, vice-president Investment Management and Research at Richardson GMP Ltd.

"Even if you have a default, and even if you get out of the euro and bring back the drachma ... if you thought things were tough before, wait until you see prices go up after your currency depreciates about 60 per cent when the drachma starts trading again."

Sentiment was also depressed Friday morning by data showing that China's trade suffered its biggest decline in January since the 2008 financial crisis in a new sign of weak global demand and a slowing domestic economy.

Exports fell 0.5 per cent from a year earlier to US$149.9 billion, while imports were down 15 per cent at $122.7 billion. The import decline was sharper than expected, suggesting that even the world's second-largest economy is slowing markedly.

China is a major buyer of iron ore, oil and other commodities and industrial components, meaning any downturn could hurt suppliers such as Canada, Australia, Brazil and South Africa. Commodity prices retreated following the data.

The base metals sector led losers, down 1.7 per cent as the March copper contract in New York dropped 12 cents to US$3.86 a pound. Copper prices have charged ahead from around US$3.43 at the first of the year, reflecting a string of positive economic data from the U.S. and hopes that the Chinese government would be able to relax lending requirements at banks to encourage economic growth. China is the biggest consumer of the metal.

Teck Resources (TSX:TCK.B) fell 55 cents to $40.24 while First Quantum Minerals (TSX:FM) dropped 55 cents to $21.28.

Uranium giant Cameco Corp. (TSX:CCO) raised its net profits by nearly a third to $265 million or 67 cents a share on higher prices and production. Revenue jumped 45 per cent to $977 million. Its shares dipped 19 cents to $23.17.

The energy sector fell 1.3 per cent as the March crude contract on the New York Mercantile Exchange down $1.17 to US$98.67 a barrel. Suncor Energy (TSX:SU) lost 72 cents to $33.87 and Canadian Natural Resources (TSX:CNQ) declined 54 cents to $37.75.

April gold dropped $15.90 to US$1,725.30 an ounce, pushing the gold sector down almost one per cent. Barrick Gold Corp. (TSX:ABX) faded 64 cents to $48.25.

The telecom sector was weak as Telus (TSX:T) reported that fourth-quarter profits increased 4.9 per cent to $237 million or 76 cents a share, two cents less than analyst expectations. Revenue increased 5.3 per cent to $2.69 billion from $2.55 billion and its shares fell 91 cents to $56.30.

The industrials sector fell 1.15 per cent as Air Canada (TSX:AC.B) shares continued to take a beating, down six cents or 5.22 per cent to $1.09 as it said it has reached a tentative agreement with its mechanics, baggage handlers, and cargo agents. The deal came a day after the union representing the airline's pilots called for a strike vote and the carrier said it lost $249 million last year, leading to a 12 per cent slide in the stock price.

There was some major acquisition activity in the resource sector.

Pulp producer Fibrek Inc. (TSX:FBK) has struck a friendly deal to be acquired by Mercer International Inc. The Montreal-based pulp maker says the Mercer cash and share bid tops a $130 million offer by Resolute Forest Products (TSX:ABH), the former AbitibiBowater. Fibrek shares surged 19 cents or 16.8 per cent to $1.32.

Earnings disappointments and worries surrounding Greece pushed the Toronto market down 1.49 per cent last week, snapping a seven-week long winning streak.