Oil stocks hammer Bay Street

Key TSX index suffers biggest loss in 18 months Damage almost 8 per cent since early in October

The Toronto Stock Exchange plunged to its biggest one- day loss in 18 months yesterday as oil prices fell and the Bank of Canada raised interest rates, with several more hikes likely in the coming months.

“ It’s rattled a lot of people,” said Patricia Croft, vice- president and chief economist at Phillips Hager & North Investment Management. The S& P/ TSX plummeted 208.35 points, or almost 2 per cent, to 10,345.09. Since the beginning of October, the index, suffering mainly from falling energy stocks, has dropped 736 points, or almost 8 per cent, from a peak of 11,081.19 reached Oct. 3. In a widely expected announcement, the Bank of Canada lifted its benchmark overnight rate one quarter- point to 3 per cent, the second boost this year. The increase is expected to help thwart inflation, but will also push investors away from equities to fixed-income instruments, said Howard Atkinson, head of Barclays Global Investors Canada. The Canadian dollar closed up 0.05 of a cent ( U. S.) to 84.86 cents after the announcement. Demand for the loonie tends to rise as more foreign investors are lured to the currency by the availability of higher interest rates.

Yesterday’s decline in the stock market was also blamed on new weather information.

“Tropical Storm Wilma was not as bad as feared, so that pushed the price of crude oil down,” said Garey Aitken, portfolio manager at Calgary- based Bissett Investment Management. “ It’s strange that something good for us would be bad for the market.” On news that Wilma would not hit the Gulf of Mexico, and the crude- oil production platforms

that were battered by Hurricane Katrina would be spared, the price of light, sweet crude oil for November delivery fell $ 1.16 a barrel to $63.20 on the New York Mercantile Exchange. That’s a fall of about 11 per cent from the high of more than $70 on the day after Hurricane Katrina.

Energy stocks represent 25 per cent of the S& P/ TSX 300 composite index, and the energy index dropped 4.39 per cent yesterday.

Croft said the price of oil will continue to be a “ huge factor” in the future performance of the index. How the economy will perform will also depend heavily on the price of oil, she said.

Investors also need to be wary of squeezed profit margins, said Mark Chandler, senior financial economist at the Bank of Nova Scotia. High energy costs are adding to rising production costs, and companies are wary of passing these costs on to consumers, he said. Reduced margins mean lower corporate profits unless demand rises enough to compensate.

Chandler doesn’t expect energy prices to stay as high as they have been. Nor does he expect yesterday’s drop on the Toronto Stock Exchange to hurt consumer confidence or retail sales. Despite the one- day plunge, the TSX/S&P 300 is still up 12 per cent yeartodate.

All 10 of the TSX’s main groups were lower yesterday, with declining stocks easily outpacing advancing issues 1,102 to 380. “ You can see they’ve just once again destroyed the energy stocks,” said John Kinsey, a portfolio manager with Caldwell Securities Ltd.

“It’s easy to say, ‘Let’s take some profits,’ or, when they go down, ‘ Let’s go do some bargainhunting.’ They’re moving around in such a volatile manner that it’s sort of a knee- jerk reaction day- to- day to the price of oil.” Paramount Resources Ltd. slid $ 2.27 ( Canadian), or 6.98 per cent, to $ 30.26. EnCana Corp. gave back $ 3.50, or 5.87 per cent, to finish at $ 56.16. Resource-based companies followed, with gold miners slipping 2.54 per cent on softer bullion prices. The broader materials index, in which golds are a subsector, fell 2.31 per cent.

Bullion melted in the heat of cheaper oil and recent speculative liquidation, traders and analysts said. Spot gold fell $2 ( U. S.) an ounce to $472.10 in New York.

Goldcorp slipped 67 cents ( Canadian) to $ 21.96. The financial sector was down 0.79 per cent as bank stocks softened. The blue chip S& P/ TSX 60 index fell 12.52 points, or 2.11 per cent, to 582.04. Volume was 292.2 million shares worth $ 4.3 billion.

U. S. blue chips also lost ground, weighed down by a 3.7 per cent drop by Exxon Mobil Corp. after a block trade of more than 24 million shares.

U. S. government data showed producer prices had their biggest gain in more than 15 years last month, stoking inflation worries and sending investors scurrying. The numbers “were worse than expected, and this has raised inflation fears and has gotten the market very jumpy,” said Kinsey.

“ Is the ( U. S. Federal Reserve Board) going to get really tough and raise rates higher and faster? That could be quite ugly for a debt- laden economy.” The Dow Jones industrial average was down 62.84 points, or 0.61 per cent, at 10,285.26. The Nasdaq composite index was down 14.30 points, or 0.69 per cent, at 2,056.00.