North American stock markets gave up more of last week’s gains Tuesday.

Toronto’s S&P/TSX composite index closed down 38.72 points at 7,688.31.

The information technology sector closed down 3.5%. Nortel Networks finished the day down 19 cents to $4.16. Celestica fell $2.36 to $48.15, and Cognos was off $2.42 to $36.99.

The health-care sector fell two% as Biovail dropped $2.95 to $57 and Biomira lost 63¢ to $4.87.

There was also weakness in the financial sector after a report that struggling American telco XO Communications may leave TD Bank and Scotiabank on the hook for US$112.5 million in loans.

Scotiabank was down 90¢ to $52.95 but TD, punished last week for a disappointing quarterly report, rose 50¢ to $39.15.

CIBC shares fell 31¢ to $50.55 after quarterly earnings fell to $235 million, half the level of a year ago.

Gold stocks enjoyed strong gains as the gold sector rocketed up more than 8% driving by rising gold prices. Goldcorp was up $2.34 at $16.89, Barrick Gold rose $1 to $34.90 and Placer Dome gained 90¢ to $20.81.

Volume in Toronto was 223.26 million shares, as decliners narrowly beat decliners 570 to 569, with 186 unchanged.

The TSX Venture exchange climbed 20.3 points at 1,202.41.

In New York, stocks closed lower as a settlement in the Merrill Lynch conflict-of-interest case and solid profit reports from the retail sector failed to create buying interest.

The Dow Jones industrial average finished with a loss of 123.79 points to 10,105.71, the second straight day the index has fallen more than 100 points. The Nasdaq composite index fell 37.41 points to 1,664.18, and the S&P 500 shed 12 points to 1,079.88.

Merrill Lynch agreed to pay US$100 million to New York and several other states to settle the New York Attorney General’s probe of analysts’ stock recommendations and their links to investment banking deals. The firm didn’t admit to any wrongdoing.

Merrill said it would separate analyst compensation from its investment banking business, awarding compensation to analysts only as it relates to the benefit of its clients. Merrill’s shares rose 1.1% to $43.85.

The Canadian dollar above US65¢ The loonie gained US0.35¢ to US65.02¢. It’s the first time the currency has closed above US65¢ since August 2001.