TORONTO - The Toronto stock market dropped more than 150 points Tuesday as the Bank of Canada declared the economy was moving into a recession and cut its main interest rate by three-quarters of a point to 1.5 per cent.
Bank stocks led the way down as Toronto's S&P/TSX composite index fell 169.56 points or two per cent to 8,397.56.
The big interest rate cut by the central bank and a new equity issue by the Royal Bank (TSX:RY) pushed the financial sector down more than five per cent.
The banks also held back from passing the whole three-quarter-point policy rate cut along to their customers, trimming the prime lending rate by half a point.
"I think this is simply a reflection that the banks want to protect their balance sheets," said Paul Vaillancourt, director of asset allocation at Franklin Templeton Managed Solutions.
"They want to ensure that there are no dividend cuts and they have to protect capital, they have to try to insulate their profitability as much as they can."
RBC lost $2.21 to $35.29 after announcing a new issue up to $2.3 billion worth of common stock. TD was down $3.40 to $42.10 and CIBC shed $2.96 to $50.31.
The loonie closed down 0.66 cents at 79.08 cents U.S., after dropping more than a cent shortly after the central bank cut its key rate to the lowest level since 1958 and added that "the global recession will be broader and deeper than previously anticipated."
The TSX Venture Exchange dipped 12.01 points to 686.17.
Falling financial stocks also sent New York markets sharply lower, as did negative corporate outlooks from the likes of FedEx and Texas Instruments.
New York's Dow Jones industrial average moved down 242.85 points to 8,691.33, while the Nasdaq composite index was down 24.4 points to 1,547.34. The S&P 500 index was 21.03 points lower to 888.67.
Traders were disheartened as American chipmaker Texas Instruments Inc. warned of sales and profits running "significantly" below expectations, and FedEx Corp. cut its forecast as the weak economy crushes package deliveries.
In Washington, expectations were high that the government will agree to rescue U.S. automakers. A proposed US$15-billion short-term bailout reportedly would give taxpayers part ownership of General Motors and Chrysler.
Auto stocks were lower with GM down 23 cents to US$4.70 while Ford fell 15 cents to $3.23.
In Toronto, the telecom sector was off 2.25 per cent as BCE Inc. (TSX:BCE) fell $2.15 to $22.50 after the company said it has hired accounting firm PricewaterhouseCoopers to help make its case to KPMG auditors who ruled it did not meet a key condition of its deal to be acquired by a group led by the Ontario Teachers' Pension Plan.
The industrial sector gave back 1.4 per cent as Canadian National Railway (TSX:CNR) declined $1.56 to $42.75.
The energy sector was flat as oil prices flattened on expectations of weakening demand. The January crude contract in New York declined $1.64 to US$42.07 a barrel after rising almost US$3 Monday. On the TSX, Canadian Natural Resources (TSX:CNQ) lost $1.30 to $40.90 while Suncor Inc. (TSX:SU) improved 67 cents to $23.97.
Crescent Point Energy Trust (TSX:CPG.UN) was up 78 cents to $21.59 as it set its 2009 capital budget at $225 million and said it expects to boost oil production by four per cent.
Major Drilling Group International Inc. (TSX:MDI) eased 97 cents to $9.99 after an August-October profit of $29.3 million, up from $22.6 million a year ago, as revenue rose 22 per cent. However, the global provider of mine-drilling services warned of a slowdown next year, especially in base metals.
The gold sector rose 1.45 per cent with the February bullion contract ahead $4.90 to US$774.20. Barrick Gold Corp. (TSX:ABX) faded 75 cents to $35.10.
