TORONTO - Rumblings in the financial sector slashed early gains Friday on North American stock markets, which had moved up on solid earnings reports from a variety of companies, including Microsoft and Caterpillar.
The showing comes at the end of a stomach-churning week for investors that saw triple-digit swings over worries about the U.S. economy. Analysts said there is also some pre-weekend profit-taking after two days of strong gains.
"I wouldn't disagree with that, given the amount of volatility we've seen working their way through markets,'' said Stuart Hall, market strategist at HSBC Securities..
"And what we've seen hasn't been an investor market but a trader market, an event-by-event ... driven market with an enormous amount of volatility.''
Toronto's S&P/TSX composite index came down from a gain of more than 200 points to move 28.01 points higher at late morning to 12,935.48 as early gains in financials turned to losses.
But the market still benefited from higher oil prices and data showing lower inflation at the end of 2007.
The key index had soared 509 points Tuesday -- after a 605-point tumble Monday -- as the U.S. Federal Reserve tried to calm jittery investors by cutting its key funds rate by three-quarters of a point.
Investors are looking to more interest rate relief next week to cushion the effects of a downturn caused by the imploding U.S. housing sector, when the Fed holds its regularly scheduled meeting on interest rates.
The Canadian dollar moved up 0.22 of a cent to 99.61 cents US after Statistics Canada said annual inflation slipped to 2.4 per cent in December, from 2.5 per cent in November.
The TSX Venture Exchange rose 37.72 points to 2,571.44.
On Wall Street, the Dow Jones industrials fell back from a 100-point advance to sit 31.78 points lower at 12,346.83.
The Nasdaq composite index dipped 1.64 points to 2,359.28 and the S&P 500 index moved down 5.6 points to 1,346.47 as investors grappled with rumours that another hedge fund may have run into financial trouble.
"There are a number of names of hedge funds being bandied about as possibly being in trouble,'' said Tom di Galoma, head of treasuries trading at Jefferies & Co. It is impossible to discern whether the stories have any basis in fact, he said.
It was the last thing investors wanted to hear from a sector that has already written off billions of dollars of securities linked to U.S. mortgages, while troubles have also surfaced at bond insurers meant to cover those problem securities.
Investors had felt relief from reports from U.K. newspapers that billionaire Wilbur Ross was in talks to acquire troubled bond insurer Ambac Financial Group Inc.
Word of Ross's interest follows comments this week by New York state regulators saying they would consider lending support to shore up the struggling bond insurance industry. The move helped reassure stock markets in the past couple of days.
The TSX financial sector gave up early gains and turned down 0.4 per cent as TD Bank (TSX:TD) shed 91 cents to $66.39 and Royal Bank (TSX:RY) declined 59 cents to $49.39.
Microsoft's quarterly earnings jumped 79 per cent to US$4.71 billion, from $2.63 billion in the second quarter a year earlier. Quarterly revenue climbed 31 per cent to $16.37 billion.
Investors were particularly encouraged after the software maker raised its outlook for the rest of the fiscal year.
The Toronto tech sector gave up much of its earlier gains but at late morning Open Text Corp. (TSX:OTC) was up 80 cents a $30.10.
Caterpillar Inc. warned it sees "anemic growth'' in the U.S. economy but "positive conditions'' for its sales in most other markets. The maker of construction equipment said its fourth-quarter earnings rose 11 per cent amid strong international growth.
Shares in Vancouver-based Caterpillar dealer Finning International (TSX:FTT) were 62 cents higher at $26.22.
On the TSX, the energy sector was ahead 1.4 per cent, with the March crude oil contract on the New York Mercantile Exchange building on Thursday's sharp runup, ahead $1.45 to US$90.86 a barrel.
Traders hope that the U.S. economic stimulus plan agreed to Thursday, which will see tax refunds of US$600 to $1,200, will keep energy demand high.
EnCana Corp. (TSX:ECA) gained 42 cents to C$64.25 and Suncor Energy (TSX:SU) advanced $1.51to $92.01.
The base metals and mining sector moved up 1.5 per cent as HudBay Minerals (TSX:HBM) rose 91 cents to $16.96 after a new CEO was announced.
Gold stocks lost early traction as the February bullion contract on the Nymex also moved lower, but was still up $6.30 to US$912.10 an ounce. It earlier hit a record high of US$924.30 on concerns about how electricity rationing in South Africa could affect gold production.
Barrick Gold (TSX:ABX) was still up $1.57 to C$52.59
European markets also lost early momentum, with London's FTSE 100 up 0.1 of a point to 5,875.9, Germany's DAX index is up 7.92 to 6,828.99 and France's CAC-40 lost 13.85 points to 4,901.44.
There were big gains in Asia overnight as Japan's Nikkei stock average jumped 4.1 per cent after falling sharply earlier in the week. Hong Kong's Hang Seng index likewise surged 6.73 per cent to end the week.
