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Traders work on the floor of the New York Stock Exchange shortly after the opening of the market in New York September 20, 2013. (LUCAS JACKSON/REUTERS)
Traders work on the floor of the New York Stock Exchange shortly after the opening of the market in New York September 20, 2013. (LUCAS JACKSON/REUTERS)

At midday: Markets continue to pare mid-week gains Add to ...

Stock markets in Toronto and the U.S. continued to fall back on Friday from large gains added mid-week after the Federal Reserve’s surprising decision to keep a key monetary stimulus program in place longer than expected.

The S&P/TSX composite index fell 28 points to 12,898.78. The Canadian dollar lost 0.21 of a cent to 97.24 cents (U.S.).

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The Dow Jones industrials index lost 23.94 points to 15,612.61 while the S&P dipped 1.59 points to 1,720.75. The Nasdaq was up 4.76 points at 3,794.14.

What little economic or corporate news there was on Friday had largely been anticipated.

Statistics Canada reported that the national annual inflation rate slowed to 1.1 per cent in August, from 1.3 per cent in July, while the Bank of Canada’s core inflation index rose 1.3 per cent for August compared with 1.4 per cent in July.

The Canadian inflation numbers were in line with economists’ expectations and remain near the low end of the central bank’s target range. As a result, the Bank of Canada is expected to keep its key short-term rates unchanged.

Many traders had expected the U.S. Federal Reserve to start pulling back on its $85-billion-a-month asset purchase program, which had been put in place following the 2008 financial crisis to keep long-term rates low.

But on Wednesday, the U.S. central bank said it will continue to buy the mortgage bonds and Treasuries because it’s still worried about the pace of the economic recovery, and the high levels of unemployment.

Allan Small, a senior investment adviser with DWM Securities, said markets are lower because they’ve kind of lost their way now that anticipation over the Fed tapering is somewhat over, and the Syrian situation is on the back burner.

“The market now is sitting around saying, OK so now what? What do we have to focus on?” said Small. “The market is kind of pausing. It doesn’t really know which way to go. Today’s action is no indication of a (long-term) direction.”

The Fed will meet next in October, and then again in December. A decision on tapering the so-called quantitative easing program can come at either occasion.

U.S. indexes were also headed down after Fed member James Bullard told Bloomberg television Friday that the bank could start reducing its stimulus at the October meeting, but added that it will be dependent on the economic data available at the time. It’s been hinted that the bank would like to conclude the program by the middle of 2014.

“Either way, the taper is coming. It’s going to happen at some point. Anyone who tries to figure out when the next taper is, that’s a fool’s game,” said Small.

“The message is very simple. Whether the Fed tapers today, tomorrow or next year, the message is that interest rates are on the rise. That’s the bottom line.”

Now that the Fed has spoken, investors will likely begin turning their focus to Washington and the political fighting between the White House and Congress over the approaching debt ceiling. It must be raised by Oct. 1 to avoid a government shutdown. Failure to do so could lead to the first-ever U.S. national default.

Market volatility will increase as the deadline approaches, said Evan Lucas of IG in Melbourne, Australia.

“This is the next key thing. A lot of people are looking for a reason to sell,” he said.

On the Toronto Stock Exchange, most sectors were lower, as gold led the charge as it fell 2.92 per cent. Shares in Agnico Eagle Mines dipped more than five per cent or $1.50 to $27.94. December bullion dropped $33 to $1,336.30 (U.S.) an ounce.

The metals and mining sector was down one per cent, as December copper dipped three cents to $3.32 (U.S.) a pound. The energy sector increased by 0.12 per cent, while the October crude contract contracted 80 cents to $105.59 (U.S.) a barrel.

The leading shares on the TSX were from plane and train maker Bombardier Inc., which surged ahead two per cents, or 10 cents, to $4.90. Potash Corp. stocks were up 1.31 per cent, or 43 cents to $33.35.

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