TSX heads for lower open, commodities fall on doubts about Fed stimulus plans

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TORONTO - The Toronto stock market headed for a sharply lower open Thursday after the U.S. Federal Reserve revealed concerns about how long to continue its open-ended stimulus program of bond purchases.

The Canadian dollar lost 0.15 of a cent to 98.15 cents US as traders avoided risk and avoided resource-based currencies such as the loonie.

U.S. futures were also negative in the wake of the Wednesday release of minutes from the Fed’s last policy meeting.

They showed some policymakers at the U.S. central bank were worried that the Fed’s US$85 billion in monthly bond purchases could eventually unsettle financial markets or cause the Fed to take losses. The purchases, commonly known as quantitative easing, are designed to boost the U.S. economy by increasing liquidity in financial markets.

The Fed said it would review its asset purchases program at its the March meeting.

The Dow Jones industrial futures lost 25 points to 13,864, the Nasdaq futures fell 10.25 points to 2,727.25 while the S&P 500 futures lost 3.25 points to 1,503.75.

Meanwhile, analysts suggested that the Fed could end its latest quantitative easing effort by the end of 2013.

"Our U.S. team believes that although there is increased attention on the costs of QE, such a divided (Fed) committee means that it is unlikely we will get changes anytime soon, or that there will be any tweaks of the asset purchase program given the Fed’s limited means to calibrate policy," said a commentary from RBC Dominion Securities.

"We think changes to QE are more likely to occur in very lumpy steps and the Fed will cut purchases from $85 billion to $40 billion per month in the fourth quarter, followed by an end to QE at year-end."

Traders flocked to the safe haven status of U.S. Treasuries following the release of the Fed minutes Wednesday, pushing the greenback higher and commodities lower.

A higher U.S. dollar pressures commodities because a stronger greenback makes it more expensive for holders of other currencies to buy oil and metals which are dollar-denominated.

The April crude contract on the New York Mercantile Exchange lost $1.45 to US$93.77 on top of a $2 slide Wednesday.

Oil prices were also undercut by expectations for higher U.S. crude supplies when the Energy Department’s Energy Information Administration releases its weekly inventory report later Thursday.

Copper prices were down sharply for a second day with the March contract on the Nymex down five cents to US$3.56 a pound, adding to a four-cent fall Wednesday.

Gold prices fell for a sixth straight day after closing at a seven-month low Wednesday. The April contract fell $8.30 to US$1,569.70 an ounce.

The latest declines were sparked by the Fed minutes because the central bank's quantitative easing has supported gold. That is because the bond buying program has encouraged worries about rising inflation and gold is seen as a hedge against rising prices.

In earnings news, Bombardier Inc. (TSX:BBD.B) said fourth-quarter net income fell by US$200 million to just $14 million before adjustments, mostly due to weak results from its rail division. Ex-items, earnings were down $39 million or 17 per cent to US$188 million or 10 cents per share, which met expectations.

The earnings news came a day after Bombardier said a Russian leasing company has agreed to purchase up to 42 of its next generation Bombardier CSeries aircraft in a potential $3.42-billion deal.

Grocer Loblaw Cos. Ltd (TSX:L) earned quarterly net income of $143 million or 48 cents per diluted share, compared with $174 million or 60 cents per share a year ago. Revenue rose 1.2 per cent to $7.46 billion from $7.37 billion.

Tim Hortons Inc. (TSX:THI) is planning to increase its quarterly dividend by 23.8 per cent. It also said quarterly revenue was up 4.1 per cent to $811.6 million, less than half the growth rate of the year as a whole. Net income attributable to shareholders also fell, dropping 2.5 per cent from a year earlier to $100.3 million or 65 cents per share.

Also, home improvement retailer Rona Inc. (TSX:RON) is cutting 200 full-time administrative jobs across Canada as it looks for ways to become more efficient and improve the customer experience. Rona also says it’s taking a hard look at its network of big-box retail stores outside Quebec and at its commercial and professional division.

Signs of a weakening eurozone depressed overseas markets.

A monthly composite output index for the eurozone from financial information company Markit, fell to 47.3 points in February from the previous month’s 48.6.

London's FTSE 100 index fell 1.63 per cent, Frankfurt's DAX and the Paris CAC 40 lost 1.75 per cent.

Earlier in Asia, Japan’s Nikkei 225 fell 1.4 per cent while Hong Kong’s Hang Seng tumbled 1.7 per cent. Australia’s S&P/ASX 200 fell 2.3 per cent and South Korea’s Kospi dropped 0.5 per cent.

In mainland China, the Shanghai Composite Index plummeted three per cent, the index’s biggest loss in almost 15 months. The smaller Shenzhen Composite Index shed two per cent.

Organizations: U.S. Federal Reserve, TSX, Bombardier Inc. Dow Jones RBC Dominion Securities New York Mercantile Exchange Tim Hortons Inc. Energy Departments Energy Information Administration Nymex Rona Inc. Loblaw Cos. Ltd Markit FTSE 100 Shanghai Shenzhen

Geographic location: U.S., TORONTO, Canada Quebec London Frankfurt Asia China

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