Economic growth disappointments, U.S. debt impasse send stock markets lower

TORONTO – The Toronto stock market was deep in the red Friday as investors sold off stocks across all sectors amid worse than expected economic figures for Canada and the United States.

Investors also looked for the next move in resolving the U.S. debt crisis.

The S&P/TSX composite index fell 96.7 points to 12,951.09 while the TSX Venture Exchange declined 15.45 points to 1,968.49.

The Canadian dollar dropped 0.45 of a cent to 104.64 cents US as Statistics Canada reported that real gross domestic product decreased by 0.3 per cent in May, much worse than the 0.2 per cent gain that had been expected. Growth was flat in April.

The federal government agency said the mining, oil and gas extraction sector was the main source of the decline in May while manufacturing and construction also contributed to the poor showing.

Other data released Friday showed that the American economy grew by an anaemic 1.3 per cent in the second quarter versus a rise of 1.8 per cent that economists had expected. First quarter growth was revised to 0.4 per cent from 1.9 per cent.

“There’s no way to sugar-coat the second quarter GDP report,” said BMO Capital Markets senior economist Sal Guatieri.

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“It doesn’t inspire confidence in a second-half recovery and will fan double-dip fears. Hopefully it will spur Capitol Hill to get its act together before it’s too late.”

Stock markets have tumbled this past week amid increasing pessimism that American lawmakers can craft an agreement that would let the U.S. debt ceiling rise. Otherwise, the country’s borrowing authority expires Tuesday and government debt could go into default later in the month.

The S&P/TSX composite index has lost about 600 points this week.

House Speaker John Boehner suffered a stinging setback Thursday when, for a second consecutive day, he had to postpone a vote on his proposal to extend the nation’s borrowing authority while cutting federal spending by nearly US$1 trillion. There was word late in the morning that the bill was being changed and a vote could be held later Friday.

On Friday, U.S. Senate Majority Leader Harry Reid said he will move ahead with a debt-limit bill.

He said his plan would cut $2.5 trillion from the deficit over a decade and added he has invited his counterpart, Senate Republican leader Mitch McConnell, to negotiate with him.

President Barrack Obama chimed in, saying there are multiple ways to resolve the debt ceiling mess, but it has to be bipartisan and it has to happen fast.

The energy sector led declines, down 1.04 per cent as worries of worsening economic conditions helped push the September contract on the New York Mercantile Exchange down $1.33 to US$96.11 a barrel. Suncor Energy (TSX:SU) was down 37 cents to $36.72 and Canadian Natural Resources (TSX:CNQ) lost 71 cents to $38.52.

The base metals sector lost 1.01 one per cent as metal prices also backed away with the September copper contract in New York down three cents to US$4.44 a pound. Teck Resources (TSX:TCK.B) fell 53 cents to C$47.35 and First Quantum (TSX:FM) was down $2.47 to $130.53.

The financials group also contributed to TSX weakness, down almost one per cent with Royal Bank (TSX:RY) falling 36 cents to $51.69 and TD Bank (TSX:TD) shed 66 cents to $76.43.

The gold sector was down 1.11 per cent while nervous investors continued to push bullion further into record territory with the December contract on the Nymex ahead $12.20 to US$1,628.40 an ounce. Goldcorp Inc. (TSX:G) lost 98 cents to $45.73 while Barrick Gold Corp. (TSX:ABX) faded 41 cents to $45.46.

New York markets backed off the lows of the day following Obama’s mid-morning speech and the Dow Jones industrial average was down 31.29 points to 12,208.82.

The Nasdaq composite index added 3.06 points to 2,769.31 while the S&P 500 index lost 1.03 points to 1,299.64.

In earnings news, Torstar Corp. (TSX:TS.B) said the sale of its stake in CTV Inc. boosted the media company’s second-quarter profit to C$228.3 million from $23.7 million a year ago. The owner of the Toronto Star and other newspapers, Harlequin books and numerous websites said that excluding the impact of the CTV sale and a loss from associated businesses in 2010, Torstar’s net income would have been $38.2 million or 47 cents per share in 2011, up from $30.4 million or 39 cents per share a year earlier. Its shares dipped 42 cents to $11.39.

George Weston Limited (TSX:WN) lost 67 cents to $66.07 as its second-quarter net earnings rose 22.7 per cent to $157 million on slightly higher sales and lower costs. Sales grew 0.7 per cent to $7.53 billion from $7.48 billion.

Drugmaker Merck & Co.’s second-quarter profit nearly tripled to US$2.02 billion from a year ago, when about $2 billion in charges hurt results. Merck also said Friday that it will cut up to 11,830 jobs. Its shares lost 67 cents to US$34.26.

Overseas, Japan’s Nikkei 225 stock average closed down 0.7 per cent, Hong Kong’s Hang Seng index lost 0.6 per cent and China’s Shanghai Composite Index shed 0.3 per cent to 2,701.73.

European bourses were sharply lower with London’s FTSE 100 index down 1.07 per cent, Frankfurt’s DAX fell 0.99 per cent while the Paris CAC 40 fell 1.92 per cent.