Canada Stocks Erase Gains as Commodities Offset Rates

Canadian stocks fell, erasing earlier gains after a six-day rally, as a slump in commodity shares overshadowed a Bank of Canada decision to remove its bias toward tightening monetary policy.

BlackPearl Resources Inc. and Suncor Energy Inc., the nation’s largest oil producer, fell more than 2.2 percent as crude dropped to its lowest in almost four months. Teck Resources Ltd. lost 1 percent as copper retreated after surging interest rates eroded the outlook for demand in China. Canadian National Railway Co. and Canadian Pacific Railway Ltd. rallied to all-time highs after posting better-than-estimated earnings.

The Standard & Poor’s/TSX Composite Index fell 4.74 points, or less than 0.1 percent, to 13,243.32 at 4 p.m. in Toronto, erasing an earlier advance of 0.5 percent. The benchmark Canadian equity gauge rallied 2.8 percent in the previous six days, reaching a two-year high.

“The attention is shifting to some concerns on the actual global economy, so that’s definitely weighing on oil prices,” Youssef Zohny, portfolio manager at Stenner Investment Partners of Richardson GMP Ltd., said by phone from Vancouver. Richardson GMP manages about C$16 billion ($15.4 billion). “Resources and commodities still make up almost half the index, so any weakness in the commodity space should feed its way into the TSX index.”

Stocks rose earlier after Bank of Canada Governor Stephen Poloz dropped language about the need for future interest rate increases that has been in place for more than a year, citing greater slack in the economy.

Interest Rates

Policy makers maintained the benchmark rate on overnight loans between commercial banks at 1 percent for the 25th consecutive meeting today, as forecast by all 23 economists in a Bloomberg News survey. Inflation will remain below the 2 percent target until the end of 2015, two quarters longer than forecast in July, with the risks of further weakness taking on “increasing importance,” the bank said.

Suncor lost 2.3 percent to C$36.64 and BlackPearl Resources slipped 3.5 percent to C$1.93. West Texas Intermediate crude slumped to its lowest level since June 28 as supplies rose more than expected in the U.S., the biggest oil-consuming country.

Centerra Gold Inc., the operator of the Kumtor mine in Kyrgyzstan, plunged 23 percent to C$4.10 after reports that the central Asian nation’s parliament rejected a proposed agreement to give the government a 50 percent stake in the mine.

Teck Resources retreated 1 percent to C$29.42 as copper fell the most in 12 weeks.

China Banks

China’s benchmark money-market rate jumped the most since July as the central bank refrained from adding funds to markets. The nation’s largest banks tripled the amount of bad loans written off in the first half, ahead of a potential wave of defaults. China is the world’s largest consumer of copper and Canada’s second-largest trading partner.

“Rising interest rates certainly will have an impact on commodity demand and on Canada. It’s indicative of an uneven recovery,” said Anish Chopra, fund manager with TD Asset Management Inc. in Toronto. The firm manages about C$216 billion.

Canadian Pacific Railway jumped 10 percent, the most since July 2009, to C$148.53 and Canadian National Railway surged 4.4 percent to C$114.59. Industrials stocks rallied 3.2 percent as a group. Six of 10 industries advanced as trading volume was 20 percent higher compared with the 30-day average.

Rail Ratios

Canadian Pacific posted an operating ratio of 65.9 percent in the third quarter, the lowest in company history, while adjusted earnings of C$1.88 topped analysts’ estimates for C$1.71. Operating ratio is a measure of management efficiency with lower numbers preferred.

Canadian National Railway said it will split its stock and plans for a C$1.4 billion share buyback.

Surge Energy Inc. added 2.5 percent to C$6.89 for its highest close since November 2012, after the oil and gas explorer boosted its 2013 exit production to 14,200 barrels of oil equivalent per day, compared with 12,000 previously. The company raised its 2014 production forecasts as well.

Surge yesterday reported two acquisitions in Saskatchewan and Manitoba for a combined C$282 million. The Calgary-based company also raised its dividend 19 percent to 50 Canadian cents a share annually.

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