March 25 (Bloomberg) -- Canadian stocks fell, led by banks and energy producers, after higher-than-forecast yields in a U.S. Treasury auction spurred concern government attempts to lower interest rates will fail amid record sales of bonds.

Manulife Financial Corp., the nation’s largest insurer, dropped 3.6 percent as a gauge of financial firms retreated after gaining as much as 2.3 percent. EnCana Corp., Canada’s largest natural-gas producer, fell 2.5 percent as natural gas prices declined for the first time in a week. Research In Motion, the maker of BlackBerry phones, lost 4.4 percent after its stock was cut to “underweight” by JPMorgan Chase & Co.

“The key thing in my mind is the financial sector,” Thomas Caldwell, chairman of Caldwell Financial Ltd. in Toronto, which manages about $2 billion, said in an interview with Bloomberg Television. “You get that stabilized and the rest will follow.”

The Standard & Poor’s/TSX Composite Index fell 51.95, or 0.6 percent, to 8,797.44, extending yesterday’s 1.2 percent loss. The benchmark rose 5.3 percent on March 23, the biggest gain since December, after the U.S. Treasury said it will spend $1 trillion to purchase distressed assets and Petro-Canada agreed to be bought in the biggest deal for a Canadian oil company.

Manulife lost 56 cents to C$14.88. Canadian Imperial Bank of Commerce declined 1.1 percent to C$46.65.

Auction Failed

U.S. Treasury notes declined after the auction of $34 billion in five-year notes drew a yield of 1.849 percent and as a U.K. government debt auction failed. The last time the U.K. was unable to attract enough investors was in 2002 when it tried to sell 30-year inflation-protected bonds.

EnCana dropped C$1.38 percent to C$53.12. Natural gas for April delivery fell 1.8 cents, or 0.4 percent, to $4.329 per million British thermal units on signs supplies are ample at the conclusion of the heating season, as the sour economy stifles industrial demand.

Suncor Energy Inc., the world’s second-largest oil-sands producer that agreed to buy Petro-Canada for C$19.3 billion ($15.8 billion), fell for a fourth day, losing 8 cents to C$28.42. Oil prices fell after a government report showed that U.S. inventories climbed to the highest level since 1993 because of decreasing demand. Crude for May delivery fell $1.21, or 2.2 percent, to $52.77 a barrel.

RIM lost C$2.40 to C$52.39. Consumers are buying less amid the recession, and subscriber growth is likely to slow “considerably over the next 18 months as we move beyond the recent slew of new model launches,” JPMorgan analyst Ehud Gelblum wrote in a report. He took over coverage from Paul Coster, who rated RIM “overweight.”

Goldcorp Inc. rose C$1.32, or 3.2 percent, to C$42.69. Bullion advanced for the first time in four sessions on speculation that the dollar will weaken, boosting demand for the precious metal as an alternative investment. Gold futures for June delivery rose $12, or 1.3 percent, to $938 an ounce on the Comex division of the New York Mercantile Exchange. The metal has gained 6.1 percent this year.

To contact the reporter on this story: Eric Martin in New York at emartin21@bloomberg.net.

Last Updated: March 25, 2009 16:54 EDT