Canada Stocks Fall on Credit Concern, Led by Royal Bank, EnCana

By John Kipphoff

July 9 (Bloomberg) -- Canadian stocks fell, led by financial companies, on concern banks and insurers face further credit losses. Royal Bank of Canada, the nation's biggest lender, paced the decline, dropping the most in almost four years.

The Standard & Poor's/TSX Composite Index erased an earlier advance after crude oil gave up gains and natural gas prices fell, sending energy shares including EnCana Corp. lower. Raw-materials producers such as Potash Corp. of Saskatchewan Inc. joined the selloff late in the session.

``There are more writedowns coming,'' said Andrew Martyn, who helps manage about $450 million at Toronto-based Davis-Rea Ltd. ``Investors better put on their crash helmets.''

The S&P/TSX dropped 1.4 percent to 13,610.84 in Toronto after climbing as much as 1.2 percent. Canada's stock benchmark has retreated 9.7 percent from its June 18 record of 15,073.13.

Royal Bank slid 4 percent to C$44.16, the most since Aug. 2004. The bank may record pretax writedowns of as much as C$1.5 billion ($1.48 billion) in the third quarter, on widening credit spreads and deteriorating subprime investments, Genuity Capital Markets analyst Mario Mendonca said in a note.

Manulife Financial Corp., Canada's biggest insurance company, dropped 4.1 percent to C$35.46 today, almost wiping out its advance yesterday, which was the biggest in four years.

Crude oil rose 1 cent to $136.05 a barrel in New York, after tumbling 6.4 percent the past two days. Oil's still up 88 percent in a year. Natural gas fell to the lowest in more than a month amid speculation supply is ample for the duration of the summer.

Energy Stocks

EnCana, North America's biggest publicly trade natural-gas company, fell 3.2 percent to C$81.18. Smaller rival Canadian Natural Resources Ltd. fell for a sixth-straight day, losing 3.5 percent to C$85.76.

Potash Corp. slipped 0.2 percent to C$218.80. The world's biggest maker of crop nutrients by market value rose as much as 3.1 percent earlier on a forecast for growing fertilizer demand and a ``buy'' recommendation from Canaccord Adams, which expects the stock to climb to C$425.

Research In Motion Ltd. fell 4.1 percent to C$118.70 for its steepest decline since June 26, when it fell the most in four years even as it reported more than doubled quarterly profit, because its forecast fell short of analysts' estimates.

``People are skeptical about everything,'' said Martyn. ``There's directional churn going on as investors try to figure out what's going on with energy and resources.''

A measure of finance shares dropped 2.3 percent and indexes of energy and materials stocks slipped 1.1 percent and 0.2 percent, respectively, after advancing earlier. The three groups account for more than three quarters of the S&P/TSX's value.

Martyn's comment was also supported by a report today that showed investment managers are becoming less enthusiastic on the Canadian equity market, with more than 95 percent believing that the market is fairly valued or overvalued.

Bullishness toward raw-materials stocks, which are still up 15 percent in 2008 after leading the S&P/TSX to its peak last month, almost halved to 32 percent from 62 percent, the survey by Russell Investments Canada Ltd. showed. Managers bearish on energy shares, the only other index group to have gained this year, rose to 41 percent from 23 percent, the report showed.

To contact the reporter on this story: John Kipphoff in Toronto at jkipphoff@bloomberg.net.