Stocks are falling this morning, as traders, worried that recent gains are overdone, begin locking-in profits. The S&P/TSX index is down 40 points at midday to 8,659.

Markets have been spooked by word that Japan has reportedly gone on high alert against a possible terrorist attack. News of the terror alert has sent currency traders scrambling for safety in the U.S. dollar, pushing most other major currencies down, including the loonie.

The economic news isn’t having too much impact. Canada’s consumer inflation plunged, as was expected, and economists feel this leaves the Bank of Canada room to cut rates at least one more time in March.

In the U.S., inflation readings were a bit hotter than expected, but not enough to spur concern that rates will have to go higher there soon.

Toronto volume remains slightly subdued, with just 147 million shares traded so far. The selling volume is well ahead of the buying, by a margin of almost nine to five. Market breadth is also solidly bearish, as losers outnumber winners by a five to three ratio.

Most sectors are sliding today, led by a traditional safe haven, gold stocks. The gold group is down about 2%.

There are also considerable slides in the mining, materials and tech sectors, where the profit-taking is heaviest. Health care stocks, real estate and energy trusts are rallying.

Barrick is leading the gold group lower, dropping 1.2%, but the heavier pressure is coming in smaller names. Bema’s warrants are down 6.7% in active trading, and there is heavy selling in Northern Orion Resources, Wheaton River and Golden Star Resources.

Other recent winners are facing some selling pressure, too. Alcan is down about 1%, and there is selling in Petro Canada, Penn West Petroleum, Intertape Polymer and SR Telecom.

Nortel is leading the tech group lower, down 1.2% on solid volume of 16.8 million shares. Open Text is down about 4%, and there is selling in biotechs, Bioscrypt and Labopharm. Labopharm reported that its net loss for the fourth quarter was $9.4 million, and the net loss for the year was $33.9 million.

However, there is some bargain hunting happening among the techs and biotechs, leading to gains in unloved names such as JDS Uniphase, Extendicare and Angiotech.

There is weakness in financials, with selling in Manulife, CIBC, Scotia, TD Bank and Bank of Montreal. Sun Life is recovering a bit, after taking a beating in the last couple of days.

WestJet is down 2% on word that Air Canada is fighting to keep it out of prime slots in Toronto’s new airport terminal.

The small crop of winners includes EnCana, Norske Skog, Maax, the Paramount and Provident energy trusts, BPO Properties, High Point Resources and Rogers Communications. Rogers Wireless reported that it has completed a US$750 million debt private placement.

In financing news, Russel Metals has closed a debt private placement of US$175 million.

Microcell Telecommunications has received bank financing commitments in a total principal amount equivalent to $450 million for its wholly owned subsidiary, Microcell Solutions Inc., from a syndicate of lenders led by J.P. Morgan Securities Inc. and Credit Suisse First Boston.

In earnings news, Hub International’s 2003 net earnings increased 24% to $36.5 million. In the fourth quarter, net earnings increased 28% to $10.7 million.

Rothmans has posted higher sales and earnings for the third quarter. Earnings for the quarter were $25.9 million, an increase of 22.5% from the same period last year.

Shermag said its net earnings declined to $3.5 million, from $4.3 million one year ago. These results are in line with the earnings estimates issued by the company.

In New York, stocks have been sliding through the morning, although the trade is rather subdued. At midday, the Dow Jones industrial average is down 38 points to 10,626. The tech-heavy Nasdaq composite index is seeing some profit-taking, too, dropping the 11 points to 2,035.

The S&P/TSX Venture index has shed 15 points to sit at 1909. Volume is strong at 51.3 million shares, led by Spider Resources Inc. It is flat at 28.5¢, with 5.1 million shares.