Stocks down on fear of bond insurance downgrades, weak economic readings

Worries about the bond insurance industry and rising levels of U.S. jobless insurance claims kept stock markets negative late Thursday morning.

The volatility on equity markets that started late in Wednesday's session after ratings agency Fitch cut its rating on bond insurer FGIC Corp. and its financial guaranty insurance subsidiaries pressured the Canadian dollar, which was down 1.19 cents to 99.49 cents US.

Toronto's S&P/TSX composite index was off a sharp triple-digit tumble, moving down 23.94 points late in the morning to 12,974.27. The junior TSX Venture Exchange was off 15.55 points to 2,539.83.

In economic news, Statistics Canada reported that economic activity increased 0.1 per cent in November.

On Wall Street, the Dow Jones industrials fell 47.88 points to 12,394.95. The Nasdaq composite index lost 11.92 points to 2,337.08 while the S&P 500 index gave back 6.07 points to 1,349.74.

The session got off to a sharply lower start after MBIA Inc., the world's largest bond insurer, reported writedowns of US$3.5 billion on souring credit derivatives in the fourth quarter, raising the possibility that it could lose its top credit rating.

And banks, which have already written down billions of dollars' worth of securities linked to mortgages, could find themselves having to take more writedowns tied to bonds insured by companies like MBIA.

The bond insurer concerns overshadowed the latest interest rate cut from the U.S. Federal Reserve and sent stock markets tumbling Thursday.

The Fed lowered its key funds rate by a half-point to three per cent, on top of last week's surprise reduction of three-quarters of a point, to help avert a recession in the United States.

There was no joy to be had from the latest economic data. The U.S. Commerce Department says American consumers spent less in December than at any time in the past 15 months.

It says spending edged up just 0.2 per cent in December, the year's peak shopping season, down sharply from a one per cent gain in November.

"There are serious headwinds against consumers right now, including tight credit conditions, rising energy prices, and slowing economic activity," said Charmaine Buskas, Senior Economics Strategist at TD Securities.

"All of these are expected to take a toll on consumption going forward."

That follows a report Wednesday that said the overall U.S. economy skidded to a near standstill in the October-December quarter, advancing at an anemic 0.6 per cent annual rate.

There was also glum employment news a day before the release of the January U.S. non-farms payroll report. U.S. jobless insurance claims rose 69,000 to 375,000 last week, the highest level since early October and the biggest gain since September 2005 in the wake of hurricane Katrina.

On the earnings front, web retailer Amazon.com reported that holiday-quarter profit more than doubled on revenue that jumped 42 per cent. But while it forecast stellar sales growth in the coming year and executives shrugged off concerns about the economy, its operating income guidance fell short of what analysts were expecting.

On the TSX, the energy sector lost 0.5 per cent as oil prices fell. The March contract on the New York Mercantile Exchange dropped $2.38 to US$89.95 a barrel. Canadian Natural Resources lost $1.31 to C$62.28.

Petro-Canada says its fourth-quarter profit jumped 36 per cent to $522 million. Net earnings in the quarter amounted to $1.08 a share.

Analysts' consensus forecast was for earnings of $1.32 a share, before one-time items, according to Thomson Financial. Petro-Canada shares dropped 88 cents to $46.17.

The financial sector was down 0.3 per cent, with Scotiabank down 37 cents to $47.26.

The gold sector was down 1.25 per cent as the April bullion contract on the New York Mercantile Exchange down 30 cents to US$926 an ounce.

Barrick Gold Corp. declined $1.16 to C$51.75. Shares in Iamgold Corp.  dropped 97 cents, or 10.6 per cent, to $8.13 after it said the French government is denying final permits needed to begin construction of its Camp Caiman project in French Guiana.

In other corporate news, Axcan Pharma Inc. says its first-quarter profit rose to US$22.3 million from a year-earlier $17.5 million as the drugmaker's revenue increased 17.9 per cent. During the quarter, Axcan announced it had entered into an agreement to be acquired by an affiliate of TPG Capital.

Axcan shares gained 23 cents to $22.77.

Lundin Mining Corp. is restating its financial results for the first three quarters of 2007 and expects to recognize a US$55-million reduction in reported net income.

Lundin said there has been misinterpretation of applicable tax legislation relating to tax rate reductions claimed by Somincor, the company's subsidiary in Portugal. Lundin shares were down 72 cents to $7.33.

Japan's Nikkei closed up 1.85 per cent.

London's FTSE 100 edged up 9.9 points to 5,847.2, Frankfurt's DAX moved down 57.03 points to 6,818.32 while the Paris CAC 40 was down 45.34 points to 4,828.23.