The Toronto stock market lost early momentum midmorning Tuesday even as commodity prices rose sharply in the wake of data indicating that China is managing to avoid an abrupt economic slowdown.
The S&P/TSX composite index lost 32.78 points to 12,225.82, dragged down by lower gold stocks, while the TSX Venture Exchange rose 8.79 points to 1,547.71.
The Canadian dollar was up 0.32 of a cent to 98.55 cents (U.S.) after the Bank of Canada announced it was leaving its key rate unchanged at 1 per cent.
The bank observed that the Canadian economy did better than expected in the last half of 2011, but it expects the pace of growth going forward to be more modest than previously forecast, largely due to deteriorating economic performance outside of Canada.
U.S. markets registered solid gains as traders got back to work after the Martin Luther King holiday, with the Dow Jones industrial index ahead 117.34 points to 12,539.4. The Nasdaq composite index gained 29.02 points to 2,739.69 and the S&P 500 index rose 10.59 points to 1,299.68.
China reported its economy grew 8.9 per cent in the final quarter of last year, down from 9.1 per cent in the third quarter and the slowest in 2 1/2 years. But markets had been expecting growth to come in at a lower reading of 8.7 per cent while the data also showed that December retail sales and factory output both accelerated.
The Chinese government moved to slow its economy last year to deal with high inflation, although officials have recently started easing lending to encourage growth in the face of plunging export demand from the U.S. and Europe.
But analysts cautioned that expectations for a quick loosening of lending requirements could be premature.
"I do sense that maybe the market is putting in too many expectations that they will loosen lending quickly," said Ian Nakamoto, director of research at MacDougall, MacDougall and MacTier.
"If I were in their shoes, I wouldn't want to loosen quickly and have another real estate bubble."
There had been worries that Beijing would be unable to engineer a soft landing for the economy.
A growing Chinese economy has been an important source of support for a struggling global economy and, in particular, has boosted prices for oil and metals and in turn energy and mining stocks on the resource-heavy TSX.
The Chinese data sent commodity prices up sharply with the February crude contract on the New York Mercantile Exchange up $1.13 to $99.83 (U.S.) a barrel. The energy sector turned flat while Suncor Energy (TSX:SU) was up 15 cents to $33.09 (CAN).
The base metals sector gained 0.77 per cent as March copper gained nine cents to $3.73 (U.S.) a pound. China is the biggest consumer of the metal. Teck Resources (TSX:TCK.B) climbed 55 cents to $40.20 (CAN).
The gold sector was the weakest component, down 1.5 per cent even while February gold bullion climbed $28.50 to $1,659.30 (U.S.) an ounce. Barrick Gold Corp. (TSX:ABX) lost 92 cents to $48.86 (CAN).
Kinross Gold Corp. (TSX:K) was the biggest loser. Its shares tumbled $2.52 or 19 per cent to $10.68 after it said soaring costs at the Tasiast mine in Africa will require months of delay. It will also result in a writedown of at least some of the goodwill related to the company's $7.1-billion (U.S.) purchase of Red Back Mining in 2010.
The financials group was a weight, down 0.33 per cent as U.S. banking giant Citigroup missed Wall Street expectations. Earnings came in at $1.16-billion (U.S.) or 38 cents a share, far short of expectations of 54 cents. Citigroup shares fell $1.44 to $29.30.
On the TSX, Royal Bank (TSX:RY) gave back 36 cents to $51.72.
TD Ameritrade said its fiscal first-quarter net income grew five per cent to $152-million (U.S.). The online brokerage's revenue was almost unchanged as trading activity slowed amid worries about the economy. TD Bank (TSX:TD) owns a minority stake in TD Ameritrade. It expects the brokerage will contribute about $56-million (CAN) to its net income and its shares dipped 42 cents to $77.37.
Meanwhile, Greece remained the epicentre of the European government debt crisis and is struggling to reach a deal with private creditors to get them to accept a reduction in the value of their holdings of Greek debt.
Without a deal with its private creditors, Greece has been told it won't get the next tranche of money due from its first bailout.
If it doesn't get that money, Greece would be unable to pay a big bond redemption in March, potentially triggering mayhem in financial markets.
A deal with private investors, known as the Private Sector Involvement, or PSI, aims to reduce Greece's debt by $100-billion (CAN) by swapping private creditors' bonds for new ones with a lower value. It is a key part of a $130-billion (CAN) international bailout, the second for Greece. It is expected that talks on the PSI will resume on Wednesday after being abandoned last Friday.
European markets racked up solid gains as London's FTSE 100 index rose 0.34 per cent, Frankfurt's DAX climbed 1.39 per cent and the Paris CAC 40 was up 1.04 per cent.
In other corporate news, commercial property owner Dundee Real Estate Investment Trust (TSX:D.UN) is buying Whiterock REIT (TSX:WRK.UN) in a transaction valued at $582.1-million. The move combines two of Canada's most prominent commercial and industry property owners, giving shareholders either $16.25 in cash or 0.4729 Dundee REIT units. Dundee units fell $1.45 to $33.62 while Whiterock jumped $1.70 to $16.
Valeant Pharmaceuticals (TSX:VRX) is sweetening its hostile bid for Irvine, Calif.,-based ISTA Pharmaceuticals Inc. Valeant's new offer raises its earlier bid by a dollar to $7.50 (U.S.) per share. And the Mississauga, Ont.,-based pharmaceutical company says it might pay even more, up to $8.50 (U.S.) a share, if ISTA agrees to a week-long period of due diligence. Valeant stock improved by 25 cents to $51.21.