TSX drops as Barrick leads golds lower; Valeant weighs

By Alastair Sharp

TORONTO (Reuters) - Canada's main stock index fell on Thursday from two-year highs hit a day earlier, as gold stocks sank and negative earnings surprises weighed.

Barrick Gold Corp (Toronto:ABX.TO - News) fell 5.9 percent to C$20.28 after the world's top gold producer said it was suspending construction of a massive project in South America.

"Without this mine being fully developed it will not be a future source of production, so that's going to impact the financial estimates in terms of cash flows and obviously impact people's net asset valuations of the company," said Gareth Watson, vice president of investment management and research at Richardson GMP.

Regulators halted construction on the Chilean side of the Pascua-Lama project last spring, citing serious environmental violations, while unionized Chilean workers have also threatened to strike.

"It's a double-edged sword. They can stop the bleeding temporarily, and on the other side, send a message to the Chilean government," said John Kinsey, portfolio manager at Caldwell Securities. "They are saying 'enough is enough,' and I think it is a good thing."

Other golds also fell as the bullion prices slipped to one-week lows. Kinross Gold (Toronto:K.TO - News) dropped by 5.4 percent to C$5.30, while Yamana gold (Toronto:YRI.TO - News) slid 3.5 percent to C$10.34.

The TSX materials subgroup, which includes precious and base metals producers, slid 3 percent. All but one of the ten TSX subgroups ended lower.

Aircraft maker Bombardier (BBDb.TO) plunged 10.2 percent to C$4.74 after its profit fell on fewer plane orders and contract issues in its train unit.

Valeant Pharmaceuticals International Inc (Toronto:VRX.TO - News) fell 3.7 percent to C$110.15 after Canada's largest publicly traded drugmaker posted a quarterly net loss and cut its full-year revenue outlook.

In the energy sector, Canada's largest oil and gas company, Suncor Energy Inc (Toronto:SU.TO - News), said it was moving ahead with a multibillion-dollar oil sands project. The stock slipped 10 Canadian cents to C$37.89.

Richardson GMP's Watson said Suncor's go-ahead was a more useful signal for investors than Barrick's pause on Pascua-Lama, given that oil prices and energy companies were more attuned to global economic sentiment than gold, which has fluctuated wildly on U.S. fiscal policy and other issues.

"There is a difference between the two in terms of how investors should be viewing them and how the global macroeconomic outlook impacts their investing decisions," he said.

The Toronto Stock Exchange's S&P/TSX composite index (.GSPTSE) ended the session down 94.07 points, or 0.70 percent, at 13,361.26.

Canada's benchmark stock index has risen sharply in recent weeks as evidence mounted that the U.S. Federal Reserve would be in no hurry to slow its monetary stimulus and China's economic slowdown stabilized.

"While we've seen some head fakes from the China economy in the past 18 to 24 months, I think this one is sustainable," said Craig Fehr, Canadian market strategist at Edward Jones in St. Louis. "But any hiccups along the way are going to spur a lot of volatility in the market."

Faster growth in China could provide Canada's stock market with a major boost, given the outsized role that resource companies play in the index.

China said on Wednesday that it expects steady foreign trade this year and next. Its thirst for raw materials is a boon to Canada's many producers in this sector.

(Reporting by Alastair Sharp and Cameron French; Editing by Nick Zieminski)