08/23/2012 08:21 EDT | Updated 10/23/2012 05:12 EDT

Doubts about Fed stimulus intentions, poor economic data push TSX lower

TORONTO - The Toronto stock market closed lower Thursday as traders speculated about whether the U.S. Federal Reserve thinks economic conditions will warrant another round of stimulus.

Traders also took in data showing the fragility of the global economic recovery.

The S&P/TSX composite index declined 56.48 points to 12,062.51 and the TSX Venture Exchange rose 2.42 points to 1,248.08.

The Canadian dollar was down 0.23 of a cent to 100.64 cents US .

New York's Dow Jones industrials declined 115.3 points to 13,057.46.

The Nasdaq composite index dropped 20.27 points to 3,053.4 and the S&P 500 index was off 11.41 points at 1,402.08.

Minutes from the Fed's Aug. 1 meeting showed many members of the committee that decides interest rate policy felt further support would be needed "fairly soon" unless the American economy improved significantly. The minutes from the U.S. central bank didn’t say what steps might be taken to keep the economic recovery going. The boldest move would be to launch a new program of bond buying to try to lower long-term interest rates to encourage more borrowing and spending.

The Fed makes its next interest rate announcement Sept. 13, when the central bank could also announce new stimulus measures.

There were also doubts about Fed willingness to embark on further stimulus as a number of economic reports from the U.S. since its last meeting have showed a steadily improving economy, including better-than-expected employment growth, rising retail sales, improving consumer confidence and better housing data.

And some analysts suggest this could indicate the Fed would be out to do more than just help the U.S.

"I think their reason for doing it would be to show that there was co-ordination amongst the central banks, that they’re all pulling together and trying to help the global situation," said Norman Raschkowan, North American strategist for Mackenzie Financial Corp.

"And it’s honestly only in that context that I think they would act because I don’t really think there is a need and I think there is a growing chorus of people who recognize that the U.S. is doing OK."

Also, St. Louis Federal Reserve Bank president James Bullard said Thursday on CNBC he wasn’t sure if a program, such as government-sponsored bond buying, was needed.

Markets failed to find lift from other data showing further signs of a steady recovery in the U.S. housing market. The Commerce Department reported that sales of new homes in the U.S. rose 3.6 per cent in July to match a two-year high reached in May to a seasonally-adjusted annual rate of 372,000.

Commodity prices had headed higher in the wake of the Fed announcement, but the energy sector lost 1.29 per cent as the October crude contract on the New York Mercantile Exchange shed early gains to move down 99 cents to US$96.27 a barrel. Suncor Energy (TSX:SU) declined 48 cents to C$31.25 and Cenovus Energy (TSX:CVE) shed 80 cents to $32.37.

The base metals sector lost 1.12 per cent with the September copper contract four cents higher at US$3.49 a pound. HudBay Minerals (TSX:HBM) gave back 15 cents to $8.59 while Teck Resources (TSX:TCK.B) declined 65 cents to $29.10.

Financials also weighed on the TSX as Manulife Financial (TSX:MFC) fell 30 cents to $10.86 and National Bank (TSX:NA) moved down 90 cents to $73.35.

December bullion moved up $32.30 to US$1,674.10 an ounce, pushing the gold component 0.5 per cent higher. Barrick Gold Corp. (TSX:ABX) gained 59 cents to $37.87.

Meanwhile, dismal economic data also pointed to worsening economic conditions in Asia and Europe.

In China, a preliminary reading of manufacturing activity indicated that government stimulus efforts have not been able to neutralize global headwinds. HSBC’s manufacturing purchasing managers’ index (PMI) fell to a nine-month low of 47.8 in July as weak global demand hit Chinese export orders. New export orders fell at their fastest rate in three years.

Traders have been hoping that the Chinese central bank might take further measures to stimulate the slowing economy. But some analysts think that policy-makers are likely to wait until after the 18th Communist party congress, scheduled for October, to take major action.

And in Europe, economic indicators also came in weak as the PMI of overall economic activity in the 17-country eurozone was at 46.6 points in August, only a tiny improvement from the previous month’s 46.5. A number below 50 means the economy is contracting.

Analysts said the number shows the eurozone is firmly in recession.

In corporate news, tech giant Hewlett-Packard was down 8.15 per cent to US$17.63 after it reported a third-quarter loss of US$8.9 billion, its largest quarterly loss ever. HP had indicated bad news was on the way earlier this month when it disclosed plans to take an $8-billion charge to reflect the shrinking value of Electronic Data Systems, a technology consulting service it bought for $13 billion in 2008.