Sept. 7 (Bloomberg) -- Canadian stocks fell, wiping out the benchmark's weekly gain, after the U.S. unexpectedly lost jobs last month, stoking concern that Canada's biggest trade partner is headed for a recession.

Royal Bank of Canada, which yesterday agreed to buy a bank in Alabama, paced declines among finance shares. EnCana Corp. led energy producers lower as crude oil fell.

Employers cut 4,000 workers from payrolls in August, the first drop in four yours, according to the U.S. Labor Department. Economists in a Bloomberg survey expected a gain of 100,000.

``The report was a surprise. It shows there's underlying weakness in the U.S. economy,'' said Michael Sprung, who oversees about $50 million as president of Sprung & Co. Investment Counsel in Toronto. ``If there is a recession in the U.S. there's no way Canada can escape the pinch.''

The Standard & Poor's/TSX Composite Index dropped 144.48, or 1.1 percent, to 13,651.21 in Toronto, leaving the benchmark down 0.1 percent in four days, the first weekly decline in three. The index has fallen 6.7 percent from a July 19 record.

Canada added more jobs than expected last month, separate data showed. The 23,300 jobs created surpassed the 18,000 median gain jobless rate was at a 33-year low and wages jumped, suggesting there's still a risk of faster inflation after the Bank of Canada left borrowing costs unchanged this week to assess the impact of a credit crunch that it said may hurt growth.

Record Premiums

Canadian banks are paying record interest-rate premiums to get investors to buy their asset-backed commercial paper amid a meltdown in U.S. subprime mortgages that's spread to Canada's market for asset-backed commercial paper.

Yesterday, the central bank said it will end special terms for one-day purchases of securities, introduced last month to ease the credit squeeze, because markets are functioning better.

Royal Bank fell 64 cents to C$53.32. Canada's largest lender yesterday agreed to pay $1.6 billion in cash and stock for Alabama National BanCorp., in its biggest acquisition since expanding into U.S. consumer banking six years ago.

Smaller rival Toronto-Dominion Bank declined 62 cents to C$71.52. Canada's s third-biggest bank owns Maine-based TD Banknorth, whose profit fell in six of the last eight quarters.

Manulife Financial Corp., Canada's largest insurer, dropped 35 cents to C$40.40.

An index of finance shares, the biggest by weighting in S&P/TSX, fell 0.8 percent, bring its drop this year to 1.3 percent.

Banks and insurers' decline prompted UBS AG's Toronto-based strategist George Vasic and his analyst colleague Garry Cooper to recommend that investors buy Canadian financial companies.

Banks Stronger

Credit market problems will hurt resource and cyclical stocks more than financials, which are likely to lead an early recovery in the market as the dimensions of the problems become gradually clearer, they wrote in a note to clients.

Energy stocks, the benchmark's second-most influential group, dropped 1.3 percent.

EnCana, Canada's largest energy company by market value, retreated 99 cents to C$62.06. Suncor Energy Inc., the world's second-biggest oil-sands producer, dropped C$1.60 to C$95.90.

Crude oil rose in New York for a fifth day, adding 0.5 percent to $76.70 a barrel, a five-week high. Natural gas fell.

The U.S. is Canada's biggest market for energy exports. Metals and fertilizers are also amongst the commodities that account for more than half of the country's exports, of which four-fifths go to the southern neighbor.

Copper, zinc and other industrial metals fell in New York. The U.S., whose housing industry is in the worst slump in 16 years, is the second-biggest consumer of copper.

Fertilizer Maker

Potash Corp. of Saskatchewan Inc., the largest fertilizer producer by market value, dropped C$2.54 to C$92.23. Teck Cominco Ltd., the second-biggest zinc producer, fell C$1.38 to C$42.79.

Gold futures rose 0.7 percent to $709.70 an ounce in New York, after breaking through $700 yesterday for the first time since May 2006.

The metal's appeal as an alternative investment was boosted as the U.S. dollar fell on speculation the Federal Reserve will cut borrowing costs to lift the economy. Gold's traditional role as a haven was also highlighted by the recession concerns.

``Oil's been strong, gold's been on a tear for the last few days,'' said Sprung. ``To some extent we have a natural hedge here in Canada.''

Barrick Gold Corp., the largest bullion miner, added 56 cents to C$38.66, building on yesterday's gain, its biggest since the Sept. 11, 2001, terrorist attacks. Smaller competitor Goldcorp Inc. climbed 21 cents to C$27.42.

``Barrick has a major breakthrough yesterday,'' said Ron Meisels, president of Montreal-based research firm P&C Holdings Inc. ``Barrick has the potential to reach significantly higher targets.''

An index of materials stocks fell 0.9 percent. Gold miners, which are included in that group, gained 0.3 percent as group, taking their weekly gain to 10 percent, the most in four years.

The following shares had unusual price changes.

ATS Automation Tooling Systems Inc. (ATA CN) rose 46 cents, or 6.9 percent, to C$7.13, the highest in more than a month. The company, whose biggest investor plans to oust management at a shareholder meting next week, was raised to ``buy'' from ``market perform'' by analyst MacMurray Whale at Cormark Securities Inc.

Cameco Corp. (CCO CN) dropped 95 cents, or 2.2 percent, to C$42.73. A startup schedule for Cigar Lake, Cameco's flooded Canadian uranium mine, won't be set until underground inspections are complete in three to five months, Chief Executive Officer Gerald Grandey said in an interview.

Meridian Gold Inc. (MNG CN) dropped C$2.78, or 8.3 percent, to C$30.90 for the worst drop in the S&P/TSX. The miner seeking suitors to defend against a hostile offer from Yamana Gold Inc. (YRI CN) said third parties it had been in discussions with don't intend to bid. Yamana lost 77 cents, or 5.9 percent, to C$12.34.

Northern Orion Resources Inc. (NNO CN) jumped 86 cents, or 16 percent, to C$6.22, the most in more than four years. The gold miner's shareholders agreed this month to a takeover by Yamana, as part of Yamana's proposed three-way combination with Meridian.

Patheon Inc. (PTI CN) fell 14 cents, or 3.9 percent, to C$3.47. The maker of drugs for other companies had a third-quarter loss before one-time items instead of the profit analysts expected. Revenue, which fell year-on-year in the period, is likely to decline further next quarter, Patheon said.

Research In Motion Ltd. (RIM CN) slid C$3.23, or 3.7 percent, to C$84.91 and dragged an index of technology shares down by 2.7 percent. The maker of the BlackBerry e-mail phones that makes two- thirds of its sales in the U.S. had trebled in a year to a record C$90.32 on Aug. 31. Computer-related shares have still gained the most this year among 10 industry groups in the S&P/TSX, adding 22 percent.

Barrick Gold Corp. (ABX CN)
EnCana Corp. (ECA CN)
Goldcorp Inc. (G CN)
Manulife Financial Corp. (MFC CN)
Potash Corp. of Saskatchewan Inc. (POT CN)
Royal Bank of Canada (RY CN)
Suncor Energy Inc. (SU CN)
Teck Cominco Ltd. (TCK/B CN)
Toronto-Dominion Bank (TD CN)

To contact the reporter on this story: John Kipphoff in Toronto at jkipphoff@bloomberg.net.

Last Updated: September 7, 2007 17:11 EDT