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Declines in energy stocks weighed on major North American stock indexes Wednesday, with oil prices dropping 4% as a larger-than-expected rise in U.S. gasoline inventories exacerbated worries about fuel demand.

U.S. WTI crude futures fell by $2.94, or 4.1%, to $69.38 a barrel - the first time they dipped below $70 since July.

“There is demand destruction coming in from the fuel side. The market is more demand focused than supply focused right now,” said Dennis Kissler, senior vice president of trading at BOK Financial.

Concerns over China’s economic health also weighed on prices, a day after rating agency Moody’s lowered the outlook on China’s A1 rating to negative from stable.

U.S. gasoline stocks rose by 5.4 million barrels last week, the Energy Information Administration said, more than quintuple the 1 million-barrel rise that analysts had expected. U.S. gasoline futures plummeted to their lowest in two years.

Crude inventories fell by 4.6 million barrels, far exceeding the 1.4 million-barrel drop analysts had expected.

The U.S. dollar also touched a two-week high, which pressures demand by making oil more expensive for holders of other currencies.

The S&P/TSX Composite Index as well as the three major U.S. indexes closed lower, as more signs of a cooling jobs market reinforced expectations that the Federal Reserve could start cutting interest rates early next year.

The ADP National Employment report showed private payrolls increased by 103,000 jobs in November, below economists’ expectation of 130,000. That provided fresh evidence of labor market weakness, a day after news of a drop in October job openings.

The latest employment data reinforced expectations the Fed’s rate-hike campaign is cooling the economy.

“Right now, it’s consistent with the overall trajectory of softening job growth, and so far that’s not problematic because the economy is still humming along,” said Bill Merz, head of capital markets research at U.S. Bank Wealth Management in Minneapolis.

“What would be concerning is if that trend persists for too long, and it turns into large job losses.”

There was little reaction across stock, bond and forex markets to the Bank of Canada’s decision to keep interest rates unchanged, as the move was widely expected and the bank provided little guidance as to when lower borrowing costs may come.

The TSX ended down 101.72 points, or 0.5%, at 20,274.21, adding to modest declines on Monday and Tuesday. On Friday, the TSX posted its highest closing level in 2-1/2 months.

The energy sector tumbled more than 4%.

Technology was also a drag, falling 1.6%, as shares of Shopify Inc ended down 4.8% after brokerage Wedbush downgraded the e-commerce company’s stock.

Utilities rose 1.6%, real estate was up 0.9% and communication services added nearly 1%.

Of the 11 S&P 500 sector indexes, eight declined, led by energy, down 1.64%, followed by a 0.93% loss in information technology.

Nvidia fell 2.3%, while Microsoft and Amazon each lost more than 1%.

While the S&P 500 ended lower, advancing issues in the index outnumbered decliners by a 1.3-to-one ratio.

On Friday, the more comprehensive non-farm payrolls report for November will offer greater clarity on the state of the labor market.

Investors widely expect the Fed to hold rates steady at its meeting next week and potentially start cutting rates in March.

A slim majority of economists in a Reuters poll said they believe the Fed will leave rates unchanged at least until July, later than earlier thought.

Optimism about rate cuts helped push the S&P 500 up nearly 9% in November, and the benchmark is now down about 9% below its record high close in December 2021.

The S&P 500 declined 0.39% to end at 4,549.34 points.

The Nasdaq Composite Index fell 0.58% to 14,146.71, while the Dow Jones Industrial Average slid 0.19% to 36,054.43.

Volume on U.S. exchanges was relatively heavy, with 11.3 billion shares traded, compared to an average of 10.7 billion shares over the previous 20 sessions.

Plug Power fell 5.9% after Morgan Stanley downgraded the hydrogen fuel cell firm to “underweight” from “equal weight.”

Tobacco giants Altria Group and Philip Morris International slipped 2.8% and 1.6%, respectively, after UK peer British American Tobacco said it will take a $31.5 billion hit from writing down the value of some U.S. cigarette brands.

Campbell Soup rallied 7.1% after the food seller beat quarterly profit expectations, helped by higher prices for its packaged meals and snacks.

The S&P 500 posted 29 new highs and no new lows; the Nasdaq recorded 99 new highs and 93 new lows.

How markets, and rate cut bets, are reacting to the BoC policy decision

Rob Carrick: Does the latest Bank of Canada announcement mean it’s go-time again for variable-rate mortgages?

Reuters, Globe staff

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