TSX hits two-week low, hurt by growth fears, oil price

TORONTO (Reuters) - Canadian stocks dropped sharply on Thursday as investors fretted about the state of the global economy and how central banks might deal with it, brushing off surprisingly robust earnings from three of the country's big banks.

All ten of the benchmark index's main sectors were lower as losses extended beyond 1 percent in afternoon trade and investors looked beyond what U.S. Federal Reserve Chairman Ben Bernanke may hint at in a key speech on Friday, turning their attention to a meeting of the European Central Bank next week.

"The market is expecting that we won't necessarily get anything definitive tomorrow out of Jackson Hole, or if we do, that it's already reflected in equity valuation levels," said Paul Taylor, the chief investment officer of fundamental equities at BMO Asset Management.

At 2:15 a.m. (1815 GMT) the Toronto Stock Exchange's S&P/TSX composite index <.gsptse> had lost 112.55 points, or 0.9 percent, at 11,897.24. The index was on track for its biggest one-day fall since early July.

The index at one point hit 11,875.05, its weakest level since August 15.

Limp data on the U.S. labor market coupled with signs that consumer spending remains robust added to the pessimism as it neither pointed to a robust recovery nor a bleak environment in which the Fed would be forced to act.

"In some ways you hope that economic data is weak enough that it forces the Fed's hand. The risk is that it's a little bit better than awful and therefore the Fed is not compelled to intervene," Taylor said.

Others looked further out to an ECB meeting next week at which the euro zone central bank's president, Mario Draghi, is expected to flesh out his plans to buy euro bonds. His hints at such a move in August was credited with helping steady global markets.

"Europe is the problem, and that's where we need some solutions for other places around the world to feel more comfortable," said Gareth Watson, vice-president for investment management and research at Richardson GMP.

ENERGY, BANK STOCKS DRAG

Toronto stocks were led lower by a 1.44 percent decline in energy shares that followed a drop in U.S. crude prices. U.S. crude fell as oil companies assessed damage after Hurricane Isaac's trek through the region.

Financial stocks were among the biggest weights even though three big Canadian banks reported better-than-expected results and dividend increases on Thursday.

The sector had enjoyed a two-day rally after Bank of Nova Scotia and Bank of Montreal upped their dividends and beat profit estimates earlier in the week.

Toronto-Dominion Bank

was down 0.9 percent at C$80.78 on Thursday even though it narrowly beat expectations for quarterly profit and raised its dividend by more than expected.

Canadian Imperial Bank of Commerce dropped 0.8 percent to C$75.75 even as it said profit rose 42 percent on higher lending volumes.

But Royal Bank of Canada , the country's largest lender, bucked the trend, jumping 1.3 percent to C$55.32 after it announced a surprise hike in its dividend on the back of a 73 percent rise in profit.

However, Bank of Nova Scotia fell 2.4 percent to C$52.32 after it said late on Wednesday it would buy ING Groep's Canadian online bank for C$3.1 billion.

"On the whole, the core Canadian banking franchises are still relatively stable and intact," Watson said. "Credit quality is not deteriorating too quickly, although in this environment it's not improving too markedly either."

($1=$0.99 Canadian)

(Editing by Jeffrey Hodgson)

Source: http://news.yahoo.com/tsx-may-open-lower-banks-focus-122733303--finance.html

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