TSX loSSeS pile up on fed, chineSe worrieS

By Malcol M Morrison The Toronto stock market piled on more losses Monday as traders continued to sell off risky assets like equities and commodities amid signs that the U.S. Federal Reserve is getting ready to cut back on stimulus and more worry about China’s economic rebound.

The S&P/TSX composite index closed off the worst levels of the session, coming back from a 237-point plunge to finish down 158.8 points at 11,836.86. The loss came on top of a slide of 192 points, or 1.57%, last week.

The Canadian dollar continued to feel the pressure of a rising greenback but the currency was well off session lows as strength in the greenback moderated midafternoon and oil prices rose sharply. The loonie closed down US0.27¢ to US95.37¢, after earlier falling as low as US94.75¢, its lowest level since early October 2011.

U.S. indexes also finished in the red but also well off session lows with the Dow Jones closing down 139.84 points at 14,659.56 on top of a 1.8% slide last week. Nasdaq gave back 36.49 points to 3,320.76 and the S&P 500 index lost 19.34 points to 1,573.09.

Markets started to nose-dive last Wednesday after Fed chairman Ben Bernanke signalled that the U.S. central bank believes economic data has improved to a point where it could start to wind down its bond-buying program this year and wrap it up by the middle of next year.

Central banks have kept interest rates low by various means, including the Fed’s bond-buying program, to stimulate the economy — providing a major boost to U.S. stock markets. For example, the Dow is still up 10% year-to-date.

“[Bernanke] actually picked up his forecast for economic growth, [and] because of that he is saying he may actually be able to remove or lessen the stimulus,” said Allan Small, senior advisor at DWM Securities. “And you would think that would be a positive.”

China also pressured markets as the government allowed commercial lending rates to soar in a move analysts said was aimed at curbing a booming underground lending industry.

Analysts say the spike late Thursday in the country’s interbank lending rate to more than 13% was part of an effort to trim off-balance-sheet lending that could threaten the financial stability of the world’s second-largest economy.

But markets feared the move also could hurt economic growth. China’s major state-owned banks are unwilling to lend to any but their biggest clients, so the vast majority of smaller businesses must rely on informal lending.

Mainland China’s Shanghai composite index plummeted 5% to a four-year low.