Traders check their monitors during a trading session on the trading floor of Frankfurt's stock exchange, June 21, 2013.RALPH ORLOWSKI/Reuters
Stocks erased early gains by midday, as rising interest rates continued to spook market participants. The U.S. benchmark 10-year Treasury yield rose above the 2.50 per cent level just before noon ET, the highest since August 2011.
The Canadian dollar continued to pile up losses amid data showing a disappointing read on retail sales and tame inflation, falling 0.75 of a cent to 95.65 cents US, its lowest level since late November, 2011.
U.S. and Canadian indexes had started out positive. But gains had melted away by late morning, adding to big losses since Wednesday when Fed Chairman Ben Bernanke said the central bank will slow down its bond purchases this year and complete them by the end of 2014 – sooner than many observers had expected.
New York's Dow Jones industrials was off 24 points, or 0.1 per cent, at 14,733 and the Nasdaq was down 20 points to 3,344.4 while the S&P 500 index was off 5 points to 1,582.
In Canada, the S&P/TSX composite index was down 17 points, or 0.1 per cent, at 11,951.
Investors have got used to central banks flooding the financial markets with stimulus since the 2008 financial collapse and subsequent recession.
The Fed's purchase of $85-billion a month in bonds has kept long-term rates low and also helped fuel a strong rally on stock markets, with the exception of the resource-weighted TSX where mining stocks in particular have lost ground amid a sluggish global recovery.
Nonetheless, the Fed thinks that economic data is strong enough to allow it to let up on its bond buying program.
The prospect that the policy will be unwound sooner than many investors thought prompted big moves late Wednesday and Thursday with the Dow shedding well over 500 points, but still leaving the blue chip index up about 12.5 per cent year to date.
The TSX has fallen about 400 points in the past two sessions, leaving the main Canadian index down 3.75 per cent so far this year.
However, an easing of stimulus by the U.S. central bank hasn't been the only worry as traders were also concerned about the latest indication of a slowing Chinese economy.
HSBC said Thursday that the preliminary version of its monthly purchasing managers index for China's manufacturing sector fell to a nine-month low of 48.3 in June, down from 49.6 in May. Numbers below 50 indicate a contraction in the manufacturing sector.
Interest sensitive stocks led advances on the TSX.
Markets have anticipated for weeks now that the Fed would cut back on its bond purchases, which had the effect of boosting the dollar and bond yields and punishing stocks in sectors such as utilities, pipelines, REITs and telcos.
The yield on the U.S. benchmark 10-year bond hovered around 2.45 per cent Friday morning, up from about 2.25 per cent before Bernanke made his announcement Wednesday afternoon. The yield was as low as 1.6 per cent in early May.
The TSX telecom sector gained almost two per cent with Telus ahead 61 cents to $34.07.
The utilities component improved by 1.1 per cent and Atlantic Power ran up 14 cents to $7.04.
The financial sector was up 0.7 per cent as TD Bank climbed $1.21 to $81.84.
The tech sector was slightly higher with BlackBerry up 12 cents to $14.57 at the end of a volatile week for the stock.
Elsewhere, shares in Wi-LAN Inc. jumped 49 cents or 11.5 per cent to $4.74 after it said Thursday after the close that it has renewed its licensing agreement with Samsung Electronics Co., Ltd. Under the agreement, Wi-LAN grants Samsung a licence to its patents for wireless products such as handsets, tablets and laptops, and for networking infrastructure equipment.
Resource stocks weakened during the morning while commodity futures were mixed after sustaining a severe mauling. Prices fell heavily Thursday, partly because of demand concerns that arose from the Chinese data but also because a higher U.S. dollar.
A higher U.S. dollar pressures commodities because a stronger greenback makes it more expensive for holders of other currencies to buy oil and metals, which are dollar-denominated.
The gold sector inched up 0.17 per cent as August gold climbed $6.20 to $1,292.40 an ounce on the New York Mercantile Exchange after tumbling $88 to a 2 1/2 year low. Iamgold lost eight cents to $4.55.
The July crude contract was down $1.23 to $93.91 a barrel after giving up almost $3 on Thursday. The energy group was up 0.05 per cent.
The base metals component erased early gains and was down 0.3 per cent while July copper edged up three cents to US$3.09 a pound following an eight-cent drop. Teck Resources lost 26 cents to $22.25.
In economic news, Statistics Canada said that the annual inflation rate rose to 0.7 per cent in May while core inflation was stable at 1.1 per cent, both below expectations.
Inflation was up 0.2 per cent in May compared with April.
Canadian retail sales edged up 0.1 per cent to $39.5-billion in April, which was weaker than an expected 0.2 per cent, following flat sales in March. Statistics Canada said that stronger sales at motor vehicle and parts dealers were offset by weaker sales at gasoline stations.
European bourses weakened from early levels as London's FTSE 100 index down 0.33 per cent, Frankfurt's DAX slipped 0.88 per cent and the Paris CAC 40 was down 0.49 per cent.
With files from the Globe and Mail