Stocks drifting after initial war euphoria --Investors realize it's no cakewalk `No one is going to take any bets'

Mar. 29, 2003. 01:00 AM <a href=www.thestar.com>STEVEN THEOBALD BUSINESS REPORTER

While U.S. troops are laying siege to Baghdad, investors are prepared to sit it out as they finally understand the invasion of Iraq will be neither clean nor quick.

"No one knows how this is going to resolve itself and no one is going to take any bets," Brendan Caldwell, chief executive of Caldwell Securities Ltd., said yesterday. "Until we have some major breakthrough to the upside in the Iraq war, this market is not going to do anything terribly convincing."

Low trade volumes are amplifying swings in stock prices, Caldwell said.

"The market is drifting lower. It is not moving lower with any conviction."

The war-is-on euphoria sent markets soaring last week, taking New York's benchmark Dow Jones industrial average up 8.4 per cent, its best week in more than two decades.

Then came grisly images and reports showing the Iraqi military wasn't eager to surrender.

As optimism for a fast resolution evaporated, financial markets sank, sending benchmark American indexes to their biggest weekly declines since January.

The Dow was off 55.68 points yesterday to end the week down 4.4 per cent at 8,145.77. The broader S&P 500 dropped 3.6 per cent for the week, falling 5.02 points yesterday to close at 863.50. The tech-heavy Nasdaq composite index slipped 3.7 per cent on the week to 1,369.60, losing 14.65 yesterday.

Most of the week's losses came in the opening hours of trading Monday.

Toronto's benchmark S&P/TSX index fared somewhat better, gaining 26.04 yesterday to finish at 6,379.48, a 2.4 per cent drop for the week, its fourth losing week in five.

Canada's dollar benefited from a sell-off of U.S. dollars.

The loonie gained 1.01 of a cent (U.S.) over the week, closing yesterday at 67.93 cents.

Crude oil prices, which were up sharply earlier in the week, have stabilized. Traders aren't as concerned about Iraq now that the United States has secured control of key oil fields, ensuring a steady supply.

"I wouldn't say indifference, I'd say there is studied standbackishness," said Brian Prokop, and analyst with Peters & Co., a Calgary-based oil and gas investment dealer.

Crude oil on the New York Mercantile Exchange, up 12 per cent on the week, closed yesterday at $30.16, down 21 cents.

In London, Brent crude, up 8.9 on the week, closed yesterday at $27.32, down 47 cents.

At this point, crude oil traders are more interested in news out of Venezuela and Nigeria, Prokop said.

Venezuelan production is still 1 million barrels a day below pre-strike levels and civil unrest in Nigeria has taken a further 800,000 barrels a day off the market, he said.

"If you see Nigeria and Venezuela come back up I think you'll see a softening in oil prices."

War uncertainties, combined with job worries and higher energy prices, helped keep U.S. consumer spending on hold in February for the second straight month.

A report yesterday by the commerce department showed consumer spending was flat in January and February, holding at an annual rate of $7.49 trillion.

"Consumers are growing increasingly cautious in their spending and the income to support future spending is weakening," said Mark Zandi, chief economist at Economy.com. "Consumers are pulling back.''

While financial markets are hunkering down for a longer than expected conflict with Iraq, investors are growing increasingly certain the U.S. Federal Reserve will soon intervene to help boost confidence.

Markets are again starting to price in an interest rate cut by the Fed following its May 6 policy meeting, said Steve Saldanha, senior capital markets strategist at TD Securities.

But markets are assigning a 50-50 chance the Bank of Canada will continue hiking its key interest rates when it sets policy on April 15, he added.

Canada's central bank has made it abundantly clear it will be raising rates further to get inflation back under control, Saldanha said.

"Geopolitical concerns alone won't stay the bank's hand."

On the Toronto Stock Exchange yesterday, the advance was fuelled by a nearly 7 per cent jump in the gold sector as the price of bullion surged $2.80 (U.S.) to $331.50 an ounce in New York. Barrick Gold rose $1.31 (Canadian) to $22.71.

The TSX financial sector was down slightly a day after the House of Commons finance committee report on bank mergers did little to clarify the issue. Bank of Montreal was off 46 cents to $40.50.

Other active Toronto stocks included Bombardier, down 21 cents to $2.71. The company announced yesterday it is cutting 350 non-union jobs from nine transport division sites in North America.

Air Canada lost 14 cents to $2.50, Hudson's Bay was up 35 cents to $8.24 and Ivanhoe Mines rose 19 cents to $3.30.

Shares in Gauntlet Energy were down $1.43 to $1.55 after the company said it will probably have to slash its northern oil and gas reserve estimates.

Inco was up $1.25 to $27.60 after it said it is spending nearly $1 billion to redeem convertible preferred shares and debentures.

With files from the star's wire services