July 2 (Bloomberg) -- Canadian stocks declined for a second day as energy producers fell after the U.S. reported more job losses than expected in June, increasing concern the recession in Canada’s largest trading partner will linger.

Suncor Energy Inc., the world’s second-largest oil-sands producer, sank 6.3 percent as crude fell more than $2 a barrel. Natural gas producer Canadian Natural Resources Ltd. lost 4.6 percent as the fuel declined. Gerdau Ameristeel Corp. dropped 4 percent after steel prices fell last month.

The Standard & Poor’s/TSX Composite Index lost 129 points, or 1.2 percent, to 10,245.91 at 4:10 p.m. in Toronto and is headed for its second weekly decline in three. The Toronto Stock Exchange was closed yesterday for Canada Day. The benchmark lost 0.97 percent on June 30 after five-straight days of gains. Since its 5-year low on March 9, the S&P/TSX has advanced 35 percent.

“Everybody’s expecting better economic activity, although confirming data doesn’t seem to be there quite yet,” said Tony Demarin, who oversees C$120 million as chief investment officer for BCV Asset Management in Winnipeg, Manitoba. “Obviously, it’s not as positive as most are hoping for. We’re going to have to start losing a lot less jobs for the equity market to advance.”

U.S. employers cut 467,000 jobs last month, surpassing the median forecast of 365,000 in a Bloomberg survey of economists. The unemployment rate rose to 9.5 percent, the highest since August 1983. Initial jobless claims dropped by 16,000 to 614,000 in the week ended June 27, from a revised 630,000 the week before.

Oil, Gas Producers

A gauge of Canadian energy producers slid 3.5 percent, the biggest drop in more than a week, as crude fell below $67 a barrel on concern demand will fall if the economic downturn is prolonged. Crew Energy Inc., the Calgary-based oil company, fell 6.9 percent to C$4.84.

Suncor lost C$2.21 to C$33.16 and Canadian Natural sank C$2.81 to C$58.38. Ben Joyce, a BMO Capital Markets analyst, wrote in a note to investors that second-quarter operating earnings for companies in the S&P/TSX will drop 40 percent from a year earlier. He said energy and materials producers would suffer the most and recommended “defensive” industries over cyclical groups.

Gerdau Ameristeel, the North American unit of Brazilian steelmaker Gerdau SA, lost 32 cents to C$7.70 as the job losses raised speculation that a longer-than-expected recession might hurt demand. Steel prices in the U.S. fell 3.1 percent in June, the 11th straight monthly decline, according to Purchasing Magazine.

Downgrade

Canadian National Railway Co. fell 2.8 percent to C$48.57, leading a drop in a measure of industrial companies in the S&P/TSX after it was downgraded to “market perform” from “outperform” by Raymond James analyst Steven Hansen.

Toronto-Dominion Bank, the nation’s second-largest lender, was the biggest drag on financial shares, dropping 2.4 percent to C$58.63 on speculation that increased unemployment will reduce lending.

Potash Corp. of Saskatchewan Inc., the world’s largest fertilizer producer by market value, offset declines, adding 2.4 percent to C$111.13 after OAO Uralkali, Russia’s second-largest potash producer, said it raised prices by 20 percent.

Metal producers also advanced as Ivanhoe Mines Ltd. surged 24 percent to C$8, the largest intraday gain since Feb. 19, after the UB Post Web site reported on June 30 that an agreement with the Mongolian government to mine the Oyu Tolgoi copper and gold deposit might be signed by the end of this month. The UB Post said negotiations have sped up because Mongolia needs money as it faces a budget deficit. Ivanhoe’s U.S. shares climbed 23 percent to $6.88 yesterday.

“The market is responding to the fact there is going to be a deal,” said Craig Miller, an analyst for TD Newcrest Inc. in Toronto, who has a “speculative buy” on Ivanhoe shares. “There was a time when the Mongolian government said we’re in no hurry. Now I think the country is hurting.”

Gastar Exploration Ltd. surged 47 percent to 66 Canadian cents after the natural gas producer said it agreed to sell oil exploration licenses in New South Wales, Australia, and a 35 percent interest in the Wilga Park Power Station to affiliates of Santos Ltd. (STO AU) for proceeds of about $175 million.

To contact the reporters on this story: Matt Townsend in New York at mtownsend9@bloomberg.net. Kayla Carrick in New York at kcarrick1@bloomberg.net.

Last Updated: July 2, 2009 17:03 EDT