Traders celebrated signs of a victory in Baghdad by U.S. forces early in the day, but have since backed off that celebratory trade.

Stocks ran up as traders watched U.S. soldiers and Iraqi civilians collaborate to topple a large statue of Saddam Hussein in a Baghdad civic square. Now that the euphoria of that moment has dissipated, the rally in stocks is disappearing too.

At midday, the Toronto Stock Exchange’s S&P/TSX composite index is down seven points to 6432. Volume has been very heavy at 164.2 million shares, with the selling outstripping the buying by more than two to one. However, a big penny stock trade is providing all the volume. Market breadth is positive, with winners trumping losers by almost five to four.

The classic war trade seems to be prevailing, despite signs of a fairly brisk U.S. victory. Golds are the only group convincingly higher, up 1.7%. There are also gains in materials stocks, real estate and telecoms. Techs are lower, as are consumer staples and industrials.

Celestica is leading the tech group lower, dropping 4.4% on heavy volume of 2.3 million shares. There is no news out on the firm, just general skepticism over its fortunes. Tech heavyweight, Nortel is more or less flat on the day. But, there is also weakness in Research in Motion, Zarlink Semi and ATI. Rogers Communications is weaker, too.

Other losers include diverse names such as Southwestern Resources, CP Ships, Laperriere & Verreault and Sun Life Financial. Royal Bank, Petro Canada and Suncor Energy are also down.

Tahera is providing the lion’s share of the volume on the downside. The diamond miner has dropped 2¢ to 15¢, with a massive 72.7 million shares changing hands. There’s no news out on the stock, but last week one of its big shareholders announced its intention to sell 67 million of its 98.9 million shares in the firm.

The golds are powering the upside, following a gain in the safe haven metal. Barrick is up 1.3% in active trading. Placer Dome is stronger, as is Kinross, and Glamis Gold.
Other notable gainers include Air Canada, DuPont, Stelco and Four Seasons Hotels.

A couple of M&A deals are also powering some big gainers. First, GlycoDesign has more than doubled to 87¢ from 47¢, with 1.7 million shares traded, on news that Inflazyme Pharmaceuticals is buying the firm in a deal valued at approximately $12.8 million. The acquisition is subject to approval by GlycoDesign shareholders and regulatory authorities.

Also, Global Thermoelectric is up 18% on 1.1 million shares traded, on news that the firm is merging with Quantum Fuel Systems Technologies Worldwide Inc. The transaction is expected to close in the third quarter of calendar year 2003 and is subject to approval by the shareholders of each company.

In other business news, Bow Valley Energy is reporting lower-than-expected production volumes, but says that higher prices means this will affect revenue, cash flow and earnings less than expected. Revenue for the year 2003 is now forecast at approximately $45 million, cash flow for the year is forecast at $24 million and earnings are forecast at $5 million. The company is proceeding with a continuing exploration and capital expenditure program of approximately $25 million, financed almost exclusively from the company’s projected cash flow.

In earnings news, Shaw Communications reported a new milestone of net positive free cash flow of about $10 million in the second quarter.

In New York, traders watched CNN all morning and traded the Dow more than 80 points higher as Iraqis seemed to be celebrating their liberation by U.S. forces. Now, markets are slipping on the realization that the war is hardly over and the rebuilding has yet to begin. The Dow is down 24 points to 8275. The S&P 500 is down a point to 877. Nasdaq is six points lower at 1377.

The S&P/TSX Venture index is bucking the trend, gaining two points to 1044. Volume is stronger at 18.1 million shares. Spider Resources is the day’s top trader, down 17% on heavy volume of more than 6 million shares after it announced preliminary assay results from the first two diamond drill holes completed on a property in Northeastern Ontario.