Markets are lower on war jitters, following the release of the Iraq weapons inspection report by the UN. The report gives Iraq good marks for being quick in allowing access at sites inspectors have chosen to visit, but the UN’s chief weapons inspector complained that the Iraqis need to do more to help out.

Jingoistic talk from the U.S. administration over the weekend means the market is bracing for war, although there is hope that U.S. President Bush clarifies his country’s position in his State of the Union address tomorrow night.

In the meantime, the market frets. The S&P/TSX index is down 72 points to 6,592. Volume is on the light side at just 110 million shares, with selling swamping the buying by a two to one margin. Market breadth is similarly negative, with losers almost doubling up on winners.

In a classic war trade, every sector is down, except golds. The weakest groups are the volatile techs, financials, health care and industrials.

Nortel is leading the way with a 6% drop on decent volume of 22.4 million shares. But this is more about the market selling off broadly than it is a vote against Nortel. Zarlink, Ballard Power and Royal Group Tech are all down too.

The financials are getting a healthy whack today too, again it’s more about nervousness surrounding equities generally. TD Bank is 1.7% lower, Scotiabank is down 1.4%, Royal is off 0.9%. Bank of Montreal is down in active trading, too. Manulife is leading the insurers lower, dropping 2.7%.

Other losers include blue chips such as Alcan, down 3% on the day, CP Ships, Shaw Communications and Air Canada. ID Biomedical is weak too.

The upside is all about gold, as traders pile into this as a safe haven play. There’s not a lot of upside in the big producers such as Barrick and Placer. There are, however, hefty gains in Eldorado Gold, Bema Gold, Glamis, Iamgold, Wheaton River Minerals, Agnico Eagle and Thistle Mining.

Other gainers Monday morning include Bow Valley Energy, Gauntlet Energy and Nevsun Resources.

In New York, stocks opened lower, rallied a little, but sold of sharply after the UN talked about its findings in Iraq so far. At midday, the Dow Jones industrial average is down 154 points to 7,977. The S&P 500 has dropped 15 points to 846. The Nasdaq is down 18 ticks to 1,324.

The small caps aren’t escaping the pain today either. At midday, the S&P/TSX Venture index is seven points lower at 1,123. Volume is lighter than usual there too at 22.8 million shares. New Blue Ribbon Resources is the day’s top trader, up a penny to 3¢ on almost 1.2 million shares.