Stocks are seeing some profit taking this morning, following a two-day rally. Economic news and geopolitical tensions continue to weigh on equity markets. The S&P/TSX composite index is down 42 points at midday to 8,560.

In Canada, the consumer inflation news was positive, with headline and core inflation slipping to very low levels. Economists say that these numbers make the case for at additional rate cutting by the Bank of Canada.

South of the border, the long-delayed U.S. producer price data for January was released. Some economists are worried that there are signs of inflation in the numbers, yet there is little evidence of job creation.

Toronto volume is strong at 149.9 million shares, with the selling edging the buying by an 11 to nine margin. Market breadth is determinedly negative, as losers outnumber winners six to five.

On a sector basis, golds are seeing some flight to safety action, rising 3%. Miners and materials companies are also notably stronger at midday.

Industrials are taking a hit though, down 2.25%, telecoms have dropped 3% on a big merger deal, techs, health care names, energy and consumer discretionary stocks are also tumbling.

The big market story of the day is Manitoba Telecom Services’ $1.7-billion bid for Allstream. MTS is down 8% on the news, in heavy volume of 10.9 million shares. The transaction is expected to be immediately accretive to earnings per share and cash flow per share, and it is expected to generate annual synergies of $120 million by 2005. Allstream stock is up 8% on the news.

BCE, is down 2% on the MTS news. It issued a statement indicating that the acquisition represents a significant change in the strategic direction of MTS. It says that it will consider its alternatives in light of the proposed transaction with Allstream and MTS’ income trust shareholder proposal.

Bombardier also continues to get punished today. It has dropped another 10% in heavy trading, after reporting results and restructuring plans yesterday.

Canadian Superior Energy has lost a further 8% on news of a shareholder lawsuit. It alleges that the firm and top executives issued a number of materially false and misleading statements about progress on a well. The company has yet to respond to the claims, other than to deny them in a news release and indicate plans to defend them.

Nortel is down 0.8% on the day, as traders ease away from recent gains. ATI and CAE are down notablym too. This sort of action is also hitting recent winners such as Alcan, EnCana, and assorted other energy companies and banks. TD Bank, Bank of Montreal and Royal Bank are all down about 0.4%.

Energy losers include Denison Energy, Midnight Oil & Gas and Enerplus. Enerplus reported 2003 earnings of $249.6 million.

Against this, big names golds are making gains. Barrick, Placer Dome, Bema Gold and Wheaton River are all stronger. Cambior is particularly strong, jumping 9.5% on news that it has achieved commercial production at a mine in Suriname. There are also heady gains for the stocks of Northgate Exploration, Golden Star Resources, Ivanhoe Mines, Miramar Mining and Pan Amercian Silver.

Elsewhere, Equitable Group is enjoying a strong debut, jumping to $21.30 from its initial public offering price of $17.50 per share, for gross proceeds of $54.3 million. The IPO was underwritten by a syndicate of underwriters led by BMO Nesbitt Burns.

Other gainers include Manulife Financial and Molson.

In business news, Sino-Forest announced that management is bowing to shareholder pressure, and will limit compensation for rights to $12 million, from the original $30 million price tag.

Cequel Energy reported that its earnings grew 574% to $35.2 million from $5.2 million.

Cott has appointed John Sheppard as chief executive officer, effective Sept. 1. Sheppard currently serves as president and chief operating officer. Frank Weise, the company’s CEO since 1998, will remain chairman.

In New York, terror fears, economics and profit taking has the Dow Jones industrial average down 64 points to 10,236. The Nasdaq composite index has dropped 23 points to 1,954.

The small caps are bucking the sell off trend today. The S&P/TSX Venture index is up 21 points to 1,863. Volume is on the light side at 34.8 million shares. EuroZinc Mining Corporation is the top trader, up a penny to 67¢ on 2.7 million shares traded.

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