Canadian stocks dropped on Monday, joining a rout in commodities prices as iron ore slumped below $40 a metric ton and oil extended a sell-off after OPEC on Friday effectively abandoned its production target.

The S&P/TSX Composite Index fell 315.94 points, or 2.37 per cent, to 13,042.83 in Toronto, the most in two months. The gauge has declined for two consecutive weeks and has lost more than 10 per cent so far this year.

Canada’s oil-sensitive loonie dropped 0.85 of a cent from Friday’s close to 73.99 cents (U.S.).

The dollar last closed below 74 cents U.S. on June 23, 2004.

Energy-related shares dropped 5.9 per cent as crude extended losses below $38 a barrel in New York. The drop followed speculation that Organization of Petroleum Exporting Countries move would prolong a record global glut.

Raw-materials producers lost 3.3 per cent as iron ore dipped below $40 on weakening demand in China and rising low-cost supply from the world’s top miners. Raw material and energy companies together make up about 30 per cent of the Canadian benchmark and have lost at least 20 per cent year to date.

A volatility gauge for 60 of the largest, most liquid Canadian stocks jumped 12 per cent after falling for three consecutive weeks.

The Bloomberg Commodity Index, a basket of prices for natural resources from copper to oil and gold, dropped 1.6 per cent. The gauge has slumped 23 per cent this year.

Hudbay Mineral Inc., First Quantum Minerals Ltd. and Teck Resources Ltd. sank at least 9.4 per cent as copper futures and gold fell by more than 1 per cent in New York. Penn West Petroleum Ltd. fell 18.5 per cent, its biggest drop in more than three months as energy stocks retreated. Paramount Resources Ltd. and Baytex Energy Corp. fell at least 16.5 per cent. Energy companies dropped 28 per cent this year.

As crude declined, Canadian airlines jumped on the cheaper oil prices. Air Canada gained 2.6 per cent while WestJet Airlines Ltd. gained 0.9 per cent. Macquarie Research also upgraded WestJet to the equivalent of buy from neutral.

Also among the S&P/TSX’s best performers, ProMetic Life Sciences Inc. rose 6.6 per cent. The bio-pharmaceutical company said its a trial for a coagulation disorder drug met safety metrics, while patients showed an immediate therapeutic response.

U.S. stocks retreated as tumbling oil prices weighed on energy and raw-material companies, sparking a sell-off after equities posted their biggest one-day gain in three months.

The S&P 500 fell 0.7 per cent to 2,077.15 in New York, trimming an earlier drop of as much as 1.2 per cent, after jumping 2.1 per cent on Friday.

Tthe Dow Jones industrial average fell 115.91 points, or 0.65 per cent, to 17,731.72, while the Nasdaq Composite dropped 40.46 points, or 0.79 per cent, to 5,101.81.

“Equity markets have basically treaded water this year as economic data has been fairly weak, particularly as it relates to the global scene,” said Kevin Caron, a market strategist and portfolio manager who helps oversee $170-billion at Stifel Nicolaus & Co. in Florham Park, NJ. “As we come into this period of time where the Fed is going to begin raising interest rates, we continue to be confronted with slow global growth, which is going to continue to be a challenge.”

U.S. stocks are coming off their most volatile week since the summer as investors were faced with releases from the Labor Department, the European Central Bank and speeches by Federal Reserve Chair Janet Yellen. The S&P 500’s rally on Friday left it little changed for a second straight week after a report showed U.S. employers added more jobs than forecast in November, increasing speculation that the economy is strong enough to withstand higher borrowing costs — something that  Ms. Yellen has signalled.

Traders are pricing in a 78-per-cent chance of liftoff before the Fed’s interest-rate decision on Dec. 16. Investors will have little data this week to assess the strength of the economy. Reports on retail sales, a measure of producer prices and the University of Michigan’s preliminary consumer sentiment index are due, though not until the end of the week.

“Weak oil is the story today,” said Stephen Carl, principal and head equity trader at Williams Capital Group LP. “The lack of economic numbers today is compounding the effect of energy losses. The Fed rate hike is imminent, and people are trying to square up heading into year-end.”

Crude oil futures tumbled 6 per cent on Monday, reaching their lowest in nearly seven years, after OPEC failed to address a growing supply glut, while a stronger dollar made it more expensive to hold crude positions.

Brent and U.S. crude settled at or near February 2009 lows in belated reaction to the OPEC policy meeting on Friday which ended without an agreement to lower production.

OPEC oil ministers dropped any reference to the group’s output ceiling for the first time in decades, highlighting disagreement among members about how to accommodate Iranian barrels once Western sanctions are lifted.

“What matters from here is whether there’ll be any meaningful production cuts in the U.S., which don’t seem to be coming,” said Doug King, chief investment officer in London for the Singapore-based Merchant Commodity Fund. As of Monday, the $220 million hedge fund was flat on the year after its bearish oil views helped it recoup a 10-per-cent loss through November.

“Price-wise, the market could be going for max pain after this,” Mr. King said. “The leader to the downside will be probably be WTI, because that’s where the production cuts have to come.”

WTI, the West Texas Intermediate benchmark for U.S. crude , settled down $2.32 at $37.65 a barrel. That was its lowest settlement since February 2009, and after reaching a session low of $37.50.

Brent, the global crude benchmark, settled down $2.27 at $40.73, after striking a February 2009 low of $40.60.

WTI forward contracts through 2024 all dropped below $60 a barrel.

Source: The close: TSX falls as oil plummets – The Globe and Mail

MONTREAL – Canadian Pacific Railway has room to raise its bid for one of America’s largest railways by nearly US$8 billion, or as much as 26 per cent, an industry observer says.

The company has said its initial offer for Norfolk Southern, which would create the biggest railway in North America, was just a starting point. Scotiabank analyst Turan Quettawala said the Calgary-based railway can go as high as US$120 per share in cash and stock or US$35.8 billion.

“If Norfolk Southern’s board is willing to play ball, it will definitely have to be at a price which is above the approximately US$95 (per share) which CP has suggested so far,” he wrote in a report Monday.

The Virginia-based railway rejected CP Rail’s (TSX:CP) offer Friday as “grossly inadequate.” It also assailed CP’s “cut-to-the-bone strategy” and suggested the U.S. regulator is unlikely to approve a takeover deal at any price.

Canadian Pacific CEO Hunter Harrison and activist investor Bill Ackman of Pershing Square Capital are scheduled to hold a conference call Tuesday morning to respond in detail and “correct every inaccuracy” raised, the railway says.

Quettawala described the takeover battle as a “game of chess.”

Moving first with a takeover bid is risky, but it puts CP Rail in a commanding position to benefit from any consolidation in the rail industry by choosing a target that will deliver the most savings and offering concessions that could win regulatory approval, he wrote.

He also questioned whether the deal would lead to other mergers.

“If this were to be the only merger, then it may end up being the deal of the century in the railway world.”

While U.S. regulatory approval is uncertain, Quettawala said there is a low risk of Canada objecting. But that could change, he said, if CP is required during negotiations to make concessions, move the headquarters to the U.S. or change the company’s name.

The combined company would initially have more than 44,000 employees with about 53,000 kilometres of track — greater than the circumference of the Earth — stretching from the Pacific to the Atlantic Ocean and south to the Gulf of Mexico.

Already, some U.S. politicians have expressed their opposition to the deal.

Democratic U.S. Sen. Amy Klobuchar and Republican Sen. David Vitter have introduced legislation to repeal a measure that prevents the Justice Department from blocking the merger, even in cases where a merger is determined to harm competition. Currently, the department only has an advisory role, Klobuchar said in a letter to the attorney general and head of the Surface Transportation Board.

Klobuchar said increased prices and diminished service have “burdened” the shipping industry and those that rely on freight rail. She said that’s costly for her state of Minnesota, which is the third largest for agricultural exports.

Source: Business News | TMXmoney | ‘Game of chess’ could see CP Rail boost bid up to US$35.8 billion, says analyst