Stocks lose early momentum, fiscal cliff worries trump strong employment data

TORONTO -- North American stock markets shed much of their early gains late morning Friday as worries about the U.S. plunging over the fiscal cliff competed with much better than expected job creation data in Canada and the United States.

The S&P/TSX composite index added 1.66 points to 12,152.79 while the TSX Venture Exchange gave back 3.44 points to 1,183.26.

Statistics Canada reported the economy added 59,000 jobs last month, while the jobless rate dropped by 0.2 of a point to 7.2 per cent.

Economists had expected a smaller increase of about 10,000 jobs, following a minimal 1,800 gain in October.

The Canadian dollar rose 0.19 of a cent to 101.09 cents US.

The news was equally surprising in the U.S., where economists had expected a lacklustre report with job creation impacted by superstorm Sandy.

But the U.S. Labour Department said the economy cranked out 146,000 jobs in November while the jobless rate decreased 0.2 of a point to 7.7 per cent. On a less positive note, job gains for the previous two months were ratcheted down by 49,000.

But gains on indexes started to deteriorate mid-morning amid other data showed that "fiscal cliff" worries are affecting consumer confidence.

The Dow Jones industrials ran ahead 28.16 points to 13,102.2 after the widely-watched University of Michigan's measure of consumer confidence fell to a four-month low of 74.5 in December, from 82.7.

"I think the change in sentiment is all sentiment and it's not based on fundamentals at all," said Philip Petursson, director of institutional equities at Manulife Asset Management.

"I think what we're seeing as far as the University of Michigan is concerned is just a reaction to all the negative press that has been surrounding the fiscal cliff and I think that weighs on confidence of Americans."

The Nasdaq dipped 11.83 points to 2,977.44 and the S&P 500 index edged 0.05 of a point lower to 1,413.89.

The "fiscal cliff" is the name for a situation that would arrive at the end of December if substantial tax increases and spending cuts are triggered. The worry is that the moves would immediately cut into economic growth, likely sending the U.S. into recession and taking other world economies along with it.

Indexes fell further late in the morning after House Speaker John Boehner accused President Barack Obama of wasting another week in trying to arrive at a deal.

The Republicans are resisting tax hikes but Obama has made it clear that taxes will have to go up for the top two per cent of taxpayers.

Traders also took in a strong earnings report from Bank of Nova Scotia (TSX:BNS). Net income jumped 31 per cent from a year ago to $1.5 billion, while the bank's adjusted earnings came in at $1.21 a share, three cents better than estimates. Its shares added a three cents to US$55.59 as the bank narrowly missed revenue estimates.

The Scotiabank results capped a string of generally positive earnings report from the big banks. But TD Bank (TSX:TD) and CIBC (TSX:CM) lost ground Thursday as their reports showed that adjusted earnings beat expectations but those banks also missed on revenue forecasts while National Bank (TSX:NA) matched forecasts.

The gold sector led TSX advancers Friday, up about 0.3 per cent while February bullion gained a dime to US$1,701.90 an ounce. Goldcorp Inc. (TSX:G) climbed 32 cents to C$36.80.

Industrials were also higher with Canadian National Railways (TSX:CNR) up 67 cents to $90.25.

The base metals sector led decliners, down 1.2 per cent with March copper ahead two cents at US$3.67 a pound. Teck Resources (TSX:TCK.B) gave back 90 cents to $34.10 while Lundin Mining (TSX:LUN) shed 24 cents to $5.01.

The energy sector was down 0.3 per cent as oil prices slipped back into negative territory after demand concerns helped push oil down for the previous three sessions, with the January crude contract on the New York Mercantile Exchange down 15 cents to US$86.11 a barrel. Imperial Oil (TSX:IMO) was down 65 cents to C$42.89.

The European Commission has given its OK to China National Offshore Oil Co.'s $15.1-billion bid for Calgary's Nexen Inc. The clearance was granted today under the EU Merger Regulation as both companies are active in oil and gas plays around the word. Nexen (TSX:NXY), for example, has operations in the North Sea.

The major hurdle for the deal is a review under the Investment Canada Act which will determine if it is of net benefit to Canada. The review deadline is this coming Monday, but that can be extended. Nexen shares added five cents to $24.92.

In other corporate news, the $6.1-billion takeover of Viterra Inc. (TSX:VT) by Swiss commodity trader Glencore International has been approved by China's ministry of commerce. It's the final regulatory step required for Glencore to buy Viterra, a Canadian company with major grain handling operations in Australia. As a result of the final approval, Glencore expects the effective closing date of the deal to be Dec. 17. Viterra shares were up 37 cents to $16.22.

European bourses were mixed after Germany's central bank sharply cut its 2013 economic growth forecast to 0.4 per cent as the European debt crisis continues to weigh on the region's economies.

London's FTSE 100 index inched up 0.02 per cent, Frankfurt's DAX was off 0.55 per cent and the Paris CAC 40 was flat.