09/30/2013 05:15 EDT

TSX Down As U.S. Government Shutdown Looks Inevitable

TORONTO — The Toronto stock market closed lower Monday as hopes faded that an 11th-hour deal would emerge on a compromise budget bill that would prevent a partial shutdown of the U.S. government at midnight.

The S&P/TSX composite index closed down 56.89 points to 12,787.19 as worry about the economic effect of such a shutdown depressed most sectors.

A notable exception was the real estate sector, which ran ahead 1.9 per cent as Brookfield Property Partners LP announced it wants to buy out other shareholders of Brookfield Office Properties Inc. in a stock-and-cash deal it valued at US$5 billion.

Brookfield Property Partners already owns a 51 per cent stake in Brookfield Office Properties. Brookfield Office Properties shares ran ahead $2.45, or 14.17 per cent, to $19.74 while Brookfield Property Partners units were a penny lower at $19.99.

The Canadian dollar closed flat at 97.06 cents US as Canada's economic growth in July came in better than expected.

Statistics Canada reported that the economy grew by 0.6 per cent in July, rebounding from a 0.5 per cent decline in June. The bounce — one of the biggest since the recession — was one-tenth of a point better than estimates.

New York also closed in the red but off the worst levels of the session as a midnight deadline loomed that would result in cuts to non-essential government services.

The Dow Jones industrials was down as much as 171 points Monday before finishing the day 128.57 points lower at 15,129.67. The Nasdaq fell 10.11 points to 3,771.48 and the S&P 500 index lost 10.2 points to 1,681.55.

Some analysts suggested that losses were limited by the conviction that the two sides will have to compromise.

"It's much ado about nothing,'' said John Stephenson, portfolio manager at First Asset Funds Inc.

"Ultimately, (President Barack) Obama is not going to defund Obamacare, the Republicans will reduce the tax on medical devices and a few other things so they can claim a victory. And then eventually it will be resolved.''

An even more worrisome deadline comes up Oct. 17. That is when the U.S. government hits its debt limit and will begin running out of cash to pay its bills.

"The concern is government has become so polarized that if they cannot pass (a budget), there's a greater chance that the debt ceiling battle will go to the brink or possibly lead to a default,'' said Alec Young, global equity strategist with S&P Capital IQ in New York.

The base metals sector led declines, down 1.22 per cent while December copper dipped a cent at US$3.32 a pound. Teck Resources gave back 42 cents to C$27.68.

The information technology sector was also a drag as BlackBerry continued to lose value, down 18 cents to $8.10.

Telecoms were also a major weight with Telus Corp. (TSX:T) down 38 cents to $34.14.

The energy sector was down 0.5 per cent amid major dealmaking in the component.

Pacific Rubiales Energy Corp. intends to buy Calgary-based oil and gas company Petrominerales (TSX:PMG) in a proposed deal worth roughly $1.6-billion. Petrominerales shareholders would be paid $11 per share plus they'll get one share of a new Brazil-focused exploration and production company called ExploreCo that will be based in Calgary.

Petrominerales shares jumped $3.96. or 51.16 per cent to $11.70 while Pacific Rubiales fell $1.20 to $20.34.

Worries about the economic impact of a U.S. government shutdown punished oil prices and the November crude contract on the New York Mercantile Exchange was down 54 cents at US$102.20 a barrel after recovering from even greater losses earlier in the session.

Prices also declined in the wake of data showing that Chinese manufacturing activity ticked up more slowly than expected in September.

A survey by HSBC Corp. showed that China's manufacturing activity expanded marginally this month, rising to 50.2 from August's 50.1. But it surprised analysts by coming in much lower than the 51.2 in a preliminary version earlier this month.

The gold sector was slightly higher as December bullion declined $12.20 to US$1,327 an ounce.

In other corporate developments, engineering firm SNC-Lavalin has put up a ``For Sale'' sign on its stake in AltaLink, which owns more than half of Alberta's electricity transmission grid. The plan is part of a broader strategy of reducing its investments in infrastructure assets and SNC's shares gained $1 to $42.35.

Traders were also focused on Italy where Prime Minister Enrico Letta faces a confidence vote on Wednesday after ministers from former premier Silvio Berlusconi's centre-right bloc pulled out of the five-month-old government. Italy has high debts that have compelled successive governments to instigate wide-ranging economic reforms.

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