Stock markets slip as war worries drive oil back above $30 US per barrel

See Source 08:59 PM EST Mar 28 MALCOLM MORRISON

TORONTO (CP) - Stock markets closed lower but well above the lows of the session Thursday as investors faced the realization that the war in Iraq won't be over in a matter of days.

"This thing is going to go on for a while. President Bush said today it'll be over when it's over, when we win. And so we have to be prepared to live with it for a while," said Fred Ketchen, manager of equity trading at Scotia Capital. In New York, the Dow Jones industrial average came back from a 125-point loss to close with a decline of 28.43 points at 8,201.45, on the lowest volume in two weeks.

Toronto's S&P/TSX composite index lost 3.46 points to 6,353.44. The TSX Venture Exchange rose 3.42 points to 1,044.10.

The absence of Iraqi crude oil, low inventories and supply interruptions in Nigeria and Venezuela forced the price of oil past the $30 US a barrel level, moving up $1.74 to $30.37 US a barrel. That kept the TSX energy sector positive with EnCana rising $1.23 to $47.91.

The Canadian dollar hit its best close since April 2000. As the American dollar weakened amid war anxiety, the loonie was up 0.30 cent at 68.36 cents US.

The Nasdaq composite index moved 3.20 points lower to 1,384.25 while the S&P 500 index was up 1.44 at 868.52.

"There hasn't been any particularly huge disaster here," said Ketchen.

"Those who thought this was going to be a three-, five- or seven-day war are coming to the realization that that was far overly optimistic given the size of the country."

Declines this week have come after an impressive eight-session runup fuelled by expectations that markets would rally strongly, as they did in the last Gulf War in 1991.

"Everybody you talk to in the last week was very skeptical about this runup," said Scott Kinnear, economist at MMS in Toronto, but investors were still inclined to pile into it.

"The runups have been so few and far between in the past two or three years, to sort of miss out on one now would be pretty tough on portfolio managers."

The release of a major report on bank mergers didn't have much effect on the TSX financial sector, which was down slightly. The Commons finance committee report recommends that merging banks be required to guarantee service levels, minimize job losses and protect rural customers.

It was a mixed performance in the sector as Bank of Montreal lost 99 cents to $40.96 but Royal Bank was up 47 cents at $58.30.

Markets kept their gaze fixed on the war and ignored economic reports.

Statistics Canada said higher fuel prices pushed raw materials prices up 22.6 per cent in February compared with a year earlier.

In the U.S., the latest revision to fourth-quarter gross domestic product showed the American economy grew at a mediocre 1.4 per cent annual rate.

In another report, U.S. claims for unemployment benefits fell last week by a seasonally adjusted 25,000 to 402,000.