TSX retreats from near 18-month high as bond yields rise

By Fergal Smith TORONTO (Reuters) - Canada's main stock index fell on Thursday, pulling back from an earlier near 18-month high as a jump in bond yields pressured defensive stocks, offsetting further gains for energy shares as oil rallied. Some of the biggest drags on the index were groups that have benefited most from the low interest rate environment. The telecommunications group fell 1.3 percent, with BCE Inc down 1.5 percent at C$57.05, while consumer staples declined 1.7 percent as Alimentation Couche Tard Inc dropped 2.9 percent to C$60.19. Investors may be "beginning to think that there is a limit to how high the stock market can continue going up if bond rates also continue to go up," said Mathieu D'Anjou, senior economist at Desjardins Group. Canada's 10-year yield touched its highest intraday in more than one year at 1.712 percent as the rally in oil prices raised inflation expectations. If yields rise too much, investors will worry about the stock market's valuation, D'Anjou said. The Toronto Stock Exchange's S&P/TSX composite index closed down 55.32 points, or 0.37 percent, at 15,027.53. Six of the index's 10 main groups ended lower. Earlier in the day, the index touched its highest since June 3, 2015 at 15,149.54. Investors reacted to divergent earnings reports from two major banks. Canadian Imperial Bank of Commerce rose 2.2 percent to C$108.34 after reporting a better-than-expected quarterly profit. Meanwhile, the country's No. 2 lender Toronto-Dominion Bank fell 0.8 percent to C$63.07 after reporting earnings that were in line with expectations. "In light of earnings produced by some of TD's peers, we would expect relative underperformance on its valuation today, with TD's now noticeably lagging capital ratio likely adding to the pressure," Barclays analyst John Aiken wrote in a note. The heavyweight financials group was barely positive overall. The materials group, which includes precious and base metals miners and fertilizer companies, lost 1.4 percent, with Teck Resources Ltd falling 4.3 percent to C$32.56. Gold prices hit a 10-month low as higher bond yields dented interest in non-yielding gold as an alternative investment. [GOL/] Losses for some pipeline stocks capped gains for the energy sector. Still, the sector rose 0.8 percent, adding to a nearly 8 percent jump on Wednesday after OPEC members and Russia agreed to limit their oil output in a bid to prop up prices. Tourmaline Oil Corp rose 3.6 percent to C$37.55 as U.S. crude prices settled up $1.62 at $51.06 a barrel. [O/R] (Additional reporting by Alastair Sharp; Editing by Bernadette Baum and Meredith Mazzilli)