TSX tumbles 170 points on worries of Chinese economy overheating

TORONTO (CP) - Falling resource stocks led the way to a loss of more than 150 points on the Toronto stock market in early trading Thursday morning after the Chinese government announced it will take steps to keep the economy from overheating.
Investors worry such steps could mean higher interest rates, which could in turn dampen demand forr commodities. Toronto's S&P /TSX composite index fell 170.23 points to 13,541.73 after running up 54 points Wednesday to a fresh record high.

The pledge by the China State Council came after the government announced that inflation rose to its highest level in more than two years in March, up 3.3 per cent - above the government's three per cent target.

It also said the economy surged 11.1 per cent in the first quarter.

The move by the Chinese government sent New York, Asian and European bourses lower.

Higher inflation was also on the minds of Canadian investors after a big 12.5 per cent spike in gasoline prices helped push Canada's annual inflation rate up 2.3 per cent in March from two per cent in February.

Core inflation, the index also used by the Bank of Canada to monitor the inflation-control target, rose by 2.3 per cent from March last year, but was slightly down from 2.4 per cent in February.

"Core inflation remains too hot for the Bank's comfort, and the non-core elements continue to bubble along noisily (especially food and energy), adding to the upward pressure," said BMO Nesbitt Burns deputy chief economist Doug Porter.

"We suspect that next week's (monetary policy report) - two days after Tuesday's interest rate decision - will remain officially neutral, but could hint that inflation risks are now a tad more important than growth concerns."

All sectors were in the red with the mining sector the leading decliner, down 2.2 per cent with Teck Cominco Ltd. (TSX:TCK.B) down $2.82 to $84.77 and Blue Pearl Mining (TSX:BLE) off 33 cents to $16.57.

The gold sector fell 2.35 per cent as the June bullion contract in New York dropped US$ to US$ an ounce. Kinross Gold Corp. (TSX:K) dropped 69 cents to $15.75.

The energy sector retreated 1.5 per cent as the June crude contract on the New York Mercantile Exchange fell 99 cents to US$62.14 a barrel. EnCana Corp. (TSX:ECA) declined $1.02 to $60.66.

In other economic news, Statistics Canada said that wholesale sales rose by 0.8 per cent to $43 billion in February, reversing all of the 0.7 per cent decline posted in January.

The most significant increase came in the personal and household goods sector, which rose four per cent.

The TSX Venture Exchange gave back 39.56 points to 3,295.63 while the Canadian dollar added 0.07 cent to 88.73 cents US.

A day after closing at a record high, New York's Dow Jones industrial average declined 38.12 points to 12,765.72 after a 30.9-point rise.

The Nasdaq composite index moved 15.84 down points to 2,494.66 on top of a 6.45-point loss and the S&P 500 index declined 6.99 points to 1,465.51.

Overseas, London's FTSE 100 index fell 30.5 points to 6,418.9.

Frankfurt's DAX 30 gave back 79.37 points to 7,202.97 and the Paris CAC 40 lost 41.43 points to 5,794.52.

Japan's Nikkei 225 index dropped 1.7 per cent, with the U.S. dollar's retreat against the yen adding to selling momentum for export-related shares.

Hong Kong's Hang Seng Index fell 2.3 per cent and Seoul's benchmark index sank 1.4 per cent.

The Shanghai composite index - which had hit new records earlier this week - tumbled 4.5 per cent to 3,449.02 after earlier losing as much as seven per cent.

Asian concerns overshadowed a slew of of positive U.S. earnings reports.

EBay Inc.'s first-quarter result showed a 52 per cent surge in profit.

Merrill Lynch & Co. said first-quarter profits soared 31 per cent to US$2.11 billion from a year earlier, when the nation's largest retail brokerage booked a charge related to its acquisition of asset manager BlackRock Inc.

Dow component Merck & Co. on Thursday said its first-quarter profit jumped 12 per cent as the drug maker saw higher sales and sold off some products.

Schering-Plough Corp. said its first-quarter profit soared 55 per cent, boosted by strong demand for its Remicade drug and other products. Their results beat Street forecasts.

CBOT Holdings Inc., the holding company for the Chicago Board of Trade, also beat expectations as its first-quarter profit climbed 58 per cent due to higher trading volume and higher average exchange fee rates.

Kraft Foods Inc., the world's second-largest food and beverage maker, said its first-quarter profit fell 30 per cent, but excluding certain items the report was better than analysts predicted.

In other news:

-Agricore United (TSX:AU) has accepted a $1.8 billion takeover bid from James Richardson International Ltd. that matches a proposal by Saskatchewan Wheat Pool (TSX:SWP).

-Shares in Van Houtte Inc. (TSX:VH) fell $1.80 to $24.45 after the coffee services firm announced a non-binding $421 million takeover offer worth $25 a share. Its shares rose five per cent Wednesday before a trading halt on speculation about such a takeover.

-An additional four million Magnetix magnetic building sets made by Montreal-based Mega Brands (TSX:MB) are being recalled after children swallowed the tiny magnets in them and were seriously injured, the U.S. Consumer Product Safety Commission announced Thursday. Mega Brands shares fell 43 cents to $22.70.

-Shares in Canadian National Railways (TSX:CNR) moved down 57 cents to $55.88 with more than 300 railroad employees expected to be back to work Thursday after the company announced it was lifting its lockout in the wake of passage of federal back-to-work legislation. The legislation takes effect Thursday night. Reports say the United Transportation Union is instructing its members to return to the job.

-Drug developer Lorus Therapeutics Inc. (TSX: LOR) reported a loss of $2.1 million or a penny per share for the three months ended Feb. 28. That compared with a loss of $4.1 million or two cents per share in the same period a year ago.

© The Canadian Press, 2007