Markets opened with a broad selloff in response to weak economic news, but the major market guages are recovering at midday. Currently, the S&P/TSX composite index is down just 21 points to 7,578.

Volume remains on the low side for recent days at 129 million shares, with the buying ahead of the selling by a margin of about four to three. However, market breadth favours the downside, with losers outnumbering winners 11:9.

On the economic front, it was reported that Canadian labour costs rose sharply in the second quarter.

South of the border both retail sales and consumer sentiment was weaker than expected, while producer price inflation was a bit hotter than anticipated.

All of this is whacking stocks across the board, the only sectors making small gains are diversifieds and materials.

The weakest sectors are industrials, down 1.4%, golds, down 1.3%, and techs, off 1%. Consumer discretionary stocks and energy plays are weaker, too.

On the upside, Alcan is gaining 5.5% in strong trading, on news that it has won its bid for French rival Pechiney SA with a richer offer. Pechiney’s board is now recommending a revised cash/share offer of up to 48.50 euros per Pechiney share. The total deal could be worth as much as 4 billion euros, creating the world’s largest aluminum company.

Joining Alcan on the upside is Nortel, which has gained another 0.9% in active trading. However, there is weakness in Cognos, Celestica, Research in Motion, Wireless Matrix and CAE.

There is also strength in a mixed bag of smaller names, including Quebecor, Westaim, Cinram, Crescent Point Energy, Miramar Mining, Wolfden Resources, and Telesystem International Wireless. Biotechnolog firms Angiotech and Helix Biopharama are making gains, too.

Gildan is leading on the downside after it issued an earnings warning. The firm sad that full year earnings new look likely to come in a few cents below earlier estimates. It is down about 6.5% on the news. Lingerie firm La Senza is down more than 8%, too.

Golds continue to slump today, led by a 1.8% drop in Barrick. Placer Dome is also down about 1.2%, and there is selling in Agnico Eagle and Crystallex.

In M&A news, Putnam Investments is doubling its ownership position in Sceptre Investment Counsel to about 10%.

In New York, the weak economic data has soured traders on the markets. The Dow Jones industrial average has cut its intraday losses in half, but is still down about 44 points at midday to 9,416. The Nasdaq composite index is 12 points lower at 1,834. The S&P 500 is down six points to 1,010.

Only the small caps are bucking the selling today, with the S&P/TSX Venture index gaining three points to sit at 1,371, on solid volume of 42.3 million shares. Endeavour Mining Capital is the day’s top trader, up 12¢ to $3.02 on volume of 5.3 million shares.