TORONTO - A strong rally on the Toronto stock market stalled Thursday despite a move by China to boost its flagging economy.
The S&P/TSX composite index had earlier jumped almost 100 points amid an interest rate cut by China's central bank and hopes that European officials are co-ordinating help for Spain's troubled banking sector.
But the index later drifted 41.28 points lower to close at 11,592.12 following a hike of about 300 points in the last two days, partly because of a sharp drop in gold stocks as bullion prices declined. The TSX Venture Exchange slipped 6.56 points to 1,296.08.
The Canadian dollar was unchanged at 97.29 cents US.
U.S. markets also started off strong but weakened during the afternoon with the Dow Jones industrial average up 46.17 points to 12,460.96, the Nasdaq composite index was down 13.7 points to 2,831.02 and the S&P 500 index slipped 0.14 of a point to 1,314.99.
Indexes slipped as Federal Reserve chairman Ben Bernanke told Congress that while the Fed is prepared to take further steps to boost the U.S. economy if it weakens, nothing is imminent.
"Bernanke is saying simply, we'll act if we have to if we don't have to, we won't," said Allan Small, senior adviser at DWM Securities.
"I think that should be enough for these markets because that tells you that there's this backstop. That’s the way I look at it, but the market wants the goods. But if (the Fed doesn’t deliver), who knows if this is just a temporary bounce."
The Chinese central bank cut its benchmark lending rate for the first time in nearly four years as it tried to reverse a sharp economic slowdown. The interest rate on a one-year loan will be reduced by a quarter percentage point to 6.31 per cent effective Friday. Also, banks will reportedly be allowed to offer a 20 per cent discount from the benchmark rate.
China has been a major force behind the economic recovery, driving prices for commodities and resource stocks on the Toronto market.
But, those stock prices have taken a beating over the last three months as the eurozone debt crisis has worsened and the Chinese economy has slowed.
"I think we’re hoping that they will just cut interest rates, cut bank reserve requirements, as they have been doing," added Small.
"These are good measures and obviously for Canada being a commodity-driven exporting-type nation, it’s a China rally and a China rally should help us tremendously here."
Helping sentiment Thursday were reports that European Union officials have been exploring ways to help Spain's fragile banking sector without imposing strict conditions on the Spanish government. The Financial Times said Wednesday that such a move could make Spanish officials less reluctant to accept international assistance.
Spain's banks are saddled with billions in soured property investments following the bursting of the country’s real estate bubble.
The gold sector was the biggest decliner, down about 3.5 per cent, as bullion prices slipped $46.20 to US$1,588 an ounce. Barrick Gold Corp. (TSX:ABX) fell $1.74 to C$39.79 and Goldcorp Inc. (TSX:G) faded $1.18 to $40.12.
Energy stocks also declined as the July crude contract on the New York Mercantile Exchange dipped 20 cents to US$84.82 a barrel. The energy sector was off 0.6 per cent and Cenovus Energy (TSX:CVE) rose 50 cents to C$32.97 while Canadian Natural Resources (TSX:CNQ) gave back 64 cents to $28.77.
The financials sector was the strongest advancer, up 0.65 per cent and Royal Bank (TSX:RY) climbed 33 cents to $50.99 and TD Bank (TSX:TD) advanced 75 cents to $79.08.
The base metals group erased an early strong lead to gain a slight 0.14 per cent while the July copper contract lost early momentum and was unchanged at US$3.38 a pound after jumping nine cents Wednesday. Teck Resources (TSX:TCK.B) moved ahead 24 cents to C$32.55 and Thompson Creek Metals (TSX:TCM) shed 17 cents to $3.64.
Retailer Lululemon (TSX:LLL) (NASDAQ:LULU) was a major decliner as the company's outlook for the year fell short of expectations. Lululemon's stock fell 8.76 per cent to $65.75.
The TSX had racked up a strong triple-digit gain for a second session Wednesday as traders continued to pick up stocks that have been beaten down amid concern about the potential global impact of the European Union’s drawn-out debt crisis. Buyers moved in following a drop of almost two per cent last week that left the market down about 10 per cent from the highs of 2012 in late February.
In other corporate news, shares in telecom technology company Sandvine Corp. (TSX:SVC) tumbled 11.97 per cent to $1.25 as the company warned that it now expects between $18 million and $18.5 million of revenue in its just-ended second quarter, about $4 million below expectations.
Transcontinental (TSX:TCL.B) shares dropped 30 cents to $9.50 as the printing and publishing company missed expectations in the second quarter and reported a $106.2 million loss despite higher revenues. The Montreal-based company cited a $180-million writedown related to its media business.
Research In Motion (TSX:RIM) shares gained 43 cents to $11.04 as the company said it is discontinuing the lowest-priced model of its BlackBerry PlayBook tablet. The company has run into trouble trying to sell the device in a market dominated by Apple’s iPad and numerous other tablets.