The Toronto stock market closed lower Thursday, adding to the losses of the previous session as traders weighed the odds of the U.S. steering clear of a so-called fiscal cliff by the end of the year.
The S&P/TSX composite index was down 39.54 points at 12,191.05 following a 131-point drop Wednesday, with losses held in check for a second session by gains in the gold sector. The TSX Venture Exchange was 7.97 points higher at 1,298.68.
If a deal between the Republicans and Democrats isn't reached, tax increases and government spending cuts to the tune of US$600 billion automatically take effect. The worry is that such a drastic measure would result in the U.S. sliding back into recession, dragging down other economies, including Canada's.
One reason for the lack of confidence in American lawmakers is that traders recall the fierce infighting that went on during the debate on raising the U.S. debt limit during the summer of 2011.
"We often quote [that] past performance is no guarantee of future results," said Norman Raschkowan, North American strategist at Mackenzie Financial Corp.
"But clearly, everyone still looks at past performance and when you think back to the summer of 2011 that's where people look at the fact that the composition [of Congress] hasn't changed so people expect it increases the odds we do go over the cliff."
The Canadian dollar was down 0.43¢ to US99.96¢ as nervousness about the consequences of a looming budget crisis in Washington sent traders to the perceived safe haven of U.S. Treasuries for a second day.
U.S. indexes lost early momentum and turned lower after New York markets registered their steepest losses of 2012.
Losses were bigger in the U.S. as investors worry that taxes on capital gains and dividends could rise substantially after the first of the year.
The Dow Jones industrials racked up a triple-digit loss for a second day, giving back 121.41 points to 12,811.32. The Nasdaq was down 41.71 points to 2,895.58 while the S&P 500 index slipped 17.02 points to 1,377.51.
Hours after Barack Obama defeated Republican challenger Mitt Romney in a cliff-hanger election, Fitch said that the U.S. government's top AAA rating would be at risk if Congress and the president did not immediately forge an agreement to avoid the fiscal cliff.
Commodity prices were higher following steep losses on Wednesday.
But TSX weakness was led by a 1.22% decline in the base metals sector as December copper added 3¢ to US$3.47 a pound after falling 7¢ Wednesday. Thompson Creek Metals gave back 13¢ to $2.98 and First Quantum Minerals shed 77¢ to $22.14.
