Financial stocks led the way down on stock markets late Friday morning after JPMorgan chase and the Federal Reserve Bank of New York moved to provide temporary funding for investment bank rival Bear Stearns.
The funding will be provided as necessary for up to 28 days. During that time, JPMorgan Chase will also help Bear Stearns find permanent financing.
Bear Stearns says its liquidity significantly deteriorated over the past day and the temporary funding will help it continue operating normally. Its stock fell 42 per cent.
"We're moving into the phase where the reality of trying to stay afloat while your business is crippled is going to start to bury companies," said Paul Thornton at Northern Securities.
"You're going to see the obvious sectors continue to be weak because of this kind of thing. It's the old cockroach theory which is not new at this point - if one company is going to go under you know more of them are coming."
The Bear Stearns news overshadowed tame inflation data from the U.S. that reassured investors that the U.S. Federal Reserve can put price pressure worries on the back burner and continue to cut interest rates aggressively to hopefully help the economy through an economic slowdown.
The TSX Venture Exchange declined 15.64 points to 1,665.03 while the Canadian dollar moved down 0.3 cent to 101.16 cents US.
On the economic front, Statistics Canada reported that Canada's labour productivity fell for the first time in more than a year in the fourth quarter as GDP growth slowed, while hours worked continued to increase steadily. Productivity lost 0.8 per cent, after posting a slight 0.1 increase in each of the previous two quarters.
New York's Dow Jones industrials tumbled 124.23 points to 12,021.51.
The U.S. Labour Department reported that consumer prices were unchanged last month, a much better performance than the 0.3 per cent gain that had been expected.
Core inflation, which excludes energy and food, was also well-behaved, with an unchanged reading in February following a 0.3 per cent jump in January.
This was particularly welcome news coming ahead of Tuesday's scheduled announcement by the Fed on interest rates.
Investors are hoping for a cut of at least three quarters of a point.
"The report provides some tentative evidence that the weakening in economic activity is contributing to containing inflationary pressures emanating from rising energy and non-energy commodity prices," said RBC assistant chief economist Paul Ferley.
"This will allow policy to remain focused on limiting the extent of any slowing in growth from the ongoing housing market meltdown and credit tightening."
The TSX financial sector dropped 2.5 per cent on the Bear Stearns news as Royal Bank (TSX:RY) gave back $1.28 to $46.07 and Bank of Montreal (TSX:BMO) stepped back $1.18 to C$40.27.
Oil prices were off after running ahead to yet another record high close. The April crude contract on the New York Mercantile Exchange lost 58 cents to US$109.75 a barrel. The TSX energy sector fell 1.2 per cent with Suncor Energy (TSX:SU) down $2.84 to C$104.22 and Canadian Natural Resources (TSX:CNQ) retreated $2.72 to $104.34.
Gold prices were up, rising above US$1,000 an ounce for a second day. The April bullion contract moved up $12 to US$1,005.80 an ounce. The gold sector was up 2.3 per cent with Barrick Gold Corp. (TSX:ABX) ahead $1.76 to $53.95.
Major fertilizer supplier Agrium Inc. (TSX:AGU) has extended the deadline for UAP Holding Corp. (NASDAQ:UAPH) shareholders to tender shares to its US$2.45-billion bid until April 30.
The offer was set to expire Friday at midnight, but has been extended because all of the completion conditions have not yet been satisfied. Agrium shares declined 57 cents to $70.37.
Shares in giant-screen movie company Imax Corp. (TSX:IMX) were down 19 cents to $6.41 after its fourth-quarter loss widened to US$10.1 million from a year-ago $9.2 million as the company booked a $4-million writedown on its film-related inventories.
WestJet Airlines Ltd. (TSX:WJA) shares moved up 27 cents to $18.33 after it said Thursday it has received regulatory approval to buy back up to 2.5 million of its shares from the Toronto Stock Exchange.
Major European indexes also turned lower as France's CAC 40 gave back 52.22 points to 4,577.97, Germany's DAX down 70.37 points at 6,430.19 and the London-based FTSE 100 down 55 points at 5,637.4.
Tokyo's benchmark Nikkei 225 stock index fell 1.5 per cent, to 12,241.60, dropping to its lowest close since August 2005.
Hong Kong's Hang Seng Index extended its losses as well, dropping 0.3 per cent to 22,237.11 after plunging nearly five per cent in the previous session.
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