Source: The Canadian Press

The Toronto stock market headed for a lower open Tuesday as concerns about Europe’s government debt crisis again take centre stage with a ratings downgrade for a major bank.

U.S. futures also pointed to a lower open after Fitch downgraded its debt rating on BNP Paribas SA — the largest bank in the eurozone by deposits — by one notch Monday, reviving worries that Europe’s sovereign debt problems will slow growth and undermine the financial system. Fitch slashed BNP’s long-term rating to AA-minus from AA on deteriorating asset quality.

The Dow Jones industrial futures lost 33 points to 10,363, the Nasdaq futures lost 4.5 points to 1,895 while the S&P 500 futures were off 3.9 points to 1,106.7.

Traders are concerned that high levels of government debt across Europe, particularly in Greece, Spain and Portugal, would disrupt a global economic recovery and lead to a fresh round of losses for banks holding the debt of cash-strapped governments.

Meanwhile, the Canadian dollar moved up 0.17 of a cent to 97.79 cents US after the release of data showing that inflation is unlikely to worry the Bank of Canada as it considers whether to hike rates again in July.

Prime Minister Stephen Harper applauded China’s currency revaluation, saying it would benefit Canada by easing pressure on the Canadian dollar.

“Particularly with the limitations on the Chinese currency, Canada’s currency has really carried its proportion of burden of deprecation of the American and other Western currencies,” Harper said in an interview with Bloomberg TV.

The Canadian dollar has advanced 11% against the U.S. dollar over the past 12 months.

Statistics Canada reported that falling gasoline prices helped push Canada’s annual inflation rate down sharply to 1.4% last month.

The central bank’s much-watched core index, which excludes the volatile energy sector, declined by one notch to 1.8%, well below the bank’s desired target of 2%.



On June 1, the bank hiked the trendsetting policy rate for the first time in two years and, with the European debt crisis adding uncertainty, analysts are divided whether the Bank of Canada will continue tightening at the next meeting of governors on July 20.

Oil prices dropped below US$77 a barrel Tuesday amid waning enthusiasm over China’s decision to let the yuan appreciate and as investors considered whether the global economy is strong enough to justify a four-week rally.

The July crude contract on the New York Mercantile Exchange dropped $1.12 to US$76.70 a barrel.

Demand concerns also pushed the July copper contract on the Nymex down two cents to US$2.92 a pound and bullion prices moved further away from Friday’s latest record close, down $5.60 to US$1,235.10 an ounce.

Stocks ended up little changed Monday, giving up early gains as investors came to see China’s currency move as a long-range shift in policy and not something that could provide a short-term spark for the economy.

In other economic news, a new report due out Tuesday is expected to show sales of previously occupied homes in the U.S. rose in May, though sales could fall in the coming months now that a home buyer tax credit has expired.

The National Association of Realtors is expected to say existing home sales rose 6.1% in May to a seasonally adjusted annual rate of 6.12 million.

China’s decision to loosen the yuan’”s peg to the greenback failed to lift most Asian markets.

Japan’s benchmark Nikkei 225 stock index lost 1.2%, South Korea’s Kospi fell 0.5%, Australia’s S&P/ASX 200 was down 1.2% while Hong Kong’s Hang Seng index fell 0.5%. The Shanghai Composite Index added 0.1%.

London’s FTSE100 index fell 1.66% as Britain’s Treasury chief said he’ll cut government borrowing from 10% of GDP to 1% within five years by means of spending cuts, including a freeze on financial support to the Queen.

In an emergency budget aimed at repairing the country’s economy, George Osborne said the government will make 30 billion pounds per year (US$44 billion) in cuts to spending by 2014-15.

Frankfurt’s DAX was down 0.85% as strong data from Germany, the region’s largest economy, failed to ease tensions. The closely-watched Ifo business climate index rose to 101.8 points in June from 101.5 points in May, against analyst forecasts for a drop. The Ifo said a recovery in international demand for German exports buoyed optimism, offsetting worries about the debt crisis.

And the Paris CAC 40 lost 1.21%.

In corporate news, the Gaz Metro limited partnership (TSX:GZM.UN) plans to convert into a dividend-paying corporation. The reorganization is in keeping with changes to federal income tax policies for income trusts and limited partnerships which go into full effect in January 2011. Gaz Metro Limited Partnership has a 29% economic interest in Gaz Metro, which is Quebec’s leading natural gas distributor.