03/20/2012 08:34 EDT | Updated 05/20/2012 05:12 EDT

TSX closes in the red on lower commodity prices, signs of weaker Chinese demand

TORONTO - The Toronto Stock Exchange closed in the red Wednesday as commodity prices slumped on signals from China that could indicate a decline in demand for resources.

The S&P/TSX composite index was down 48.99 points at 12,430.7, rebounding from a 133-point loss just after the market opened. The junior TSX Venture Exchange dropped 28.08 points to 1,570.7.

The heavyweight energy and mining sectors led the broad-based decline on the main index, each down more than one per cent as commodity prices fell.

The Canadian dollar shed 0.44 of a cent to 100.83 cents US as traders flocked to the greenback on fears of slower Chinese growth.

Mining giant BHP Billiton said it expects iron ore demand in China will flatten somewhat as steel production in the country slows. Also on Tuesday, China raised the price of retail gasoline for the second time in two months.

Meanwhile, home prices dropped in 45 Chinese cities in February as the government moved to cool property speculation. And Chinese officials stated they expect auto sales to miss forecasts this year.

"Together, this worked against the positive risk tone that has been unveiled over the prior few sessions," said Mark Chandler, head of Canadian FIC strategy at RBC Dominion Securities Inc.

Gold bullion resumed its recent downward trend after a double-digit gain Monday, falling $20.30 to US$1,647 an ounce. Copper prices dropped eight cents to US$3.83 a pound. April oil lost $2.48 to US$105.61 a barrel.

Shares in oil company Canadian Natural Resources (TSX:CNQ) were down 66 cents at C$34.84, while shares in base metals miner HudBay Minerals (TSX:HBM) shed 20 cents to C$11.38.

The sell-off came amid some dealmaking in the agricultural and financial sectors.

Grain-handling company Viterra Inc. (TSX:VT) said it has agreed to be acquired by Switzerland-based Glencore International in a deal valued at $6.1 billion or $16.25 per share.

The Regina-based company says the transaction also includes an agreement that would see Calgary-based Agrium Inc. (TSX:AGU) and privately held Richardson International, based in Winnipeg, buy the majority of Viterra's Canadian assets for $2.6 billion in cash.

Viterra shares fell six cents to $15.91 while Agrium shares added $1.86 to $87.60.

Meanwhile, the Royal Bank of Canada (TSX:RY) said it is acquiring the Latin American, Caribbean and African private banking business of Coutts, the wealth division of Royal Bank of Scotland Group, for an undisclosed price. RBC shares fell 11 cents to $58.15 amid a broad decline in the financial sector.

The pilots union at Air Canada (TSX:AC.B) announced it has launched a constitutional challenge in Ontario court against federal back-to-work legislation passed last week that prevents a strike or lockout at the country's largest carrier. The airline's shares dropped three cents to 88 cents.

Wall Street also closed lower, with the Dow Jones industrial index down 68.94 points to 13,170.19, the Nasdaq 4.17 points lower at 3,074.15 and the S&P 500 slipping 4.23 points to 1,405.52.

It was a quiet day for economic data, with U.S. housing starts the only item on the North American agenda, aside from a speech from federal reserve chairman Ben Bernake.

The U.S. Commerce Department said builders started work on slightly fewer homes in February, but they began preparing for what could be the healthiest spring buying season since the housing bubble burst. Builders broke ground on a seasonally adjusted annual rate of 698,000 homes last month. That's down 1.1 per cent from January.

Data on U.S. home sales and jobless claims later this week is also likely to provide fresh clues for the market. A private survey of the U.S. homebuilding industry on Monday found that companies are increasingly hopeful that home sales will rise in coming months.