SPANISH BONDS DRAG DOWN TSX

The Toronto stock market closed lower Friday and commodities lost ground amid growing worries about the European debt crisis.

The S&P/TSX composite index declined 42.79 points to 11,622.91 as Spain again dealt with higher borrowing costs.

The Canadian dollar lost US0.48¢ to US98.75¢ after the loonie closed at a two-month high on Thursday.

Traders also took in data showing Canada’s annual inflation rate rose 0.3 of a percentage point to 1.5% in June. That’s up from 1.2% the previous month. On a month-to-month basis, the consumer price index fell 0.4% from May.

The risk-on sentiment grew as the yield on Spain’s benchmark 10-year bond ran up to 7.05% on Friday, from 6.98% the previous day. A rate of 7% and above is considered unsustainable.

The TSX racked up an overall gain for the week of 0.9% on rising expectations that central banks will step up to ensure the economic recovery stays on the rails.

Markets have also found support from a better-than-expected second quarter earnings season.

“Going into this quarter, the sentiment had been very guarded to put it mildly,” said Robert Gorman, chief portfolio strategist TD Waterhouse.

“People thought, given the slower rate of growth and the U.S. recovery, we might have a higher proportion of firms missing estimates. But for the most part, they have been beating bottom line expectations, not by much, but meaningfully, though in many cases the revenue numbers have been coming up shy, reflecting slower growth.”