Markets are pricing in more uncertainty over the war with Iraq after speculation emerged on the weekend that the U.S. drive on Baghdad may be bogging down. This has traders nervous, and the S&P/TSX composite index is down 47 points at 6,332 to midday.

Volume is quite robust at 99.4 million shares, with the buying edging the selling by a margin of 22:21. Market breadth is negative however, with losers outnumbering the winners better than eight to five.

The biggest sources of weakness are the financials, down 1.3%, and consumer discretionary stocks, which have dropped 1.8%. There is also some notable selling in techs and telecoms, and diversifieds. The only compelling source of strength is golds, which are 2.4%, in a familiar war trade.

Market nervousness is pushing down the big banks, with selling in Royal Bank, Scotia, CIBC and TD. All are down between 1.3% and 1.5% in active trading. The insurers aren’t providing much refuge either, with Manulife off 1.3% in strong trading, too.

Worries over the airline sector worldwide, and in Canada particularly, are dogging Air Canada today. It has taken a big 16.4% haircut on heavy volume of almost 1.4 million shares, as traders speculate over its future. WestJet is down less dramatically, off 4.3%.

Research in Motion is leading the techs down with a 4.3% slide. Celestica is down, too.

There is notable weakness in Alcan, Canadian Tire, Telus and Quebecor World.

The biggest gainer today is Bombardier. Shaking over concerns for the transports generally, it is up 12% in heavy trading of 6.2 million shares.

Nortel is also giving the upside volume a boost, although it has only gained 0.3% on 7.1 million shares.

The other big gainers are all golds. Barrick and Placer Dome are leading the way, up 2% and 3.7% respectively. The smaller producers are enjoying even bigger gains, led by a 6.6% move in Eldorado Gold, and strength in Kinross, Wheaton River, Thistle Mining, Nevsun Resources, Minefinders and Glamis Gold.

There is a bit of M&A action in the market today, despite the headline worries. Tundra Semiconductor has purchased the IBM 133 PCI-X Bridge product line from IBM for US$10 million in cash. Effective immediately, Tundra will market the device under its brand.

And, a subsidiary of ARC Energy Trust has acquired all of the outstanding shares, and will retire the debt, of Star Oil & Gas Ltd., a private Canadian company, for total consideration of $710 million.

In New York, the Dow Jones industrial average has risen off a 200-point intra-day drop, but the average is still down 127 points at midday to 8,019. The S&P 500 is harbouring an 11 point drop to 853. The Nasdaq composite index is down 19 ticks to 1,350.

Only the small caps are refusing to give into the skepticism. The S&P/TSX Venture index is up five and a half points at 1,057. Volume is weak however at 13.9 million shares. The top trader on the day is Xentel DM Inc., which is down 1¢ to $1.93 on 565,000 shares traded.