TSX drops as weak oil prices hit energy shares

By Alastair Sharp

TORONTO (Reuters) - Canada's main stock index fell on Friday in a broad retreat led by heavyweight energy and financial stocks as oil prices recorded their sixth straight weekly loss and North American jobs data highlighted Canada's relatively limp economy.

Canadian employment data showed a small gain in June, but a loss of full-time positions, while U.S. numbers were close enough to forecast to stoke bets the Federal Reserve will raise interest rates, perhaps as early as September.

"The probability of the Fed raising rates is getting higher," said Marcus Xu, portfolio manager at M.Y. Capital Management. "But the market could go lower from here."

The Toronto Stock Exchange's S&P/TSX composite index (.GSPTSE) fell 103.21 points, or 0.72 percent, to 14,302.70.

Nine of the index's 10 main groups fell, and decliners outnumbered advancers by almost 3-to-1. The index lost 1.1 percent over the holiday-shortened week.

"There's definitely more downside risk," Xu said. "Being more cautious and staying away from high-yield sectors is a good idea."

The most influential weights included pipeline operators TransCanada Corp (Toronto:TRP.TO - News) and Enbridge Inc (Toronto:ENB.TO - News) as well as oil producers such as Cenovus Energy Inc (Toronto:CVE.TO - News) as crude prices were haunted by sluggish demand and elevated supply. [O/R]

TransCanada fell 1.9 percent to C$48.37, Enbridge lost 1.1 percent to C$55.89, and Cenovus shed 2.5 percent to C$55.89. The overall energy group fell 1.9 percent.

Crude prices were down 1.9 percent.

Craig Fehr, Canadian market strategist at Edward Jones in St. Louis, Missouri, said that energy stocks could prove tempting for investors prepared to wait for an eventual recovery in prices.

"When you consider the declines we've seen in the energy space, there is some value there," he said.

The financial sector lost 0.9 percent, with Royal Bank of Canada (Toronto:RY.TO - News) off 1 percent at C$76.33 and insurer Manulife Financial Corp (Toronto:MFC.TO - News) down 1.2 percent at C$23.03.

Miners helped limit the damage, with Barrick Gold Corp (Toronto:ABX.TO - News) adding 2.8 percent to C$9.24, and Eldorado Gold Corp (Toronto:ELD.TO - News) advancing 2.8 percent to C$4.35. The materials group overall was flat, as the price of gold steadied and metals fell. [GOL/]

The job reports reflected the trajectory of the Canadian and U.S. economies, with modest gains for Canada and signs of a more robust U.S. recovery.

"I do think equities can move higher, it's just going to be a more volatile ride and certainly the gains are going to be lower than we've seen in past years," Edwards Jones' Fehr said.

(Additional reporting by John Tilak; Editing by James Dalgleish; and Peter Galloway)