Source: The Canadian Press

The Toronto stock market surrendered a solid early gain to close lower Tuesday as the euro again succumbed to selling pressure on the latest wave of worry connected with the European government debt crisis.

The S&P/TSX composite index, up 147 points in the morning, finished the session 48.49 points poorer at 11,764.51, while the TSX Venture Exchange lost 14.21 points to 1,540.46.

After a positive start to the trading day, investor nervousness resurfaced, which drove the U.S. dollar higher and the euro to a four-year low of US$1.2212, down from $1.2382 late Monday.

The euro’s troubles reflect investor sentiment that the US$1-trillion aid package unveiled a week ago doesn’t go far enough in helping weak European countries deal with potential debt default. Countries in the worst shape might have to gut spending, which could slow growth throughout the continent.

News that German regulators plan to limit some kinds of short selling also undermined confidence, analysts said.

Germany said it is banning “naked” short selling, which occurs when traders bet on a stock or investment that they don’t own. The ban covers government debt certificates and shares of several financial companies.

Naked short selling was cited as one of the factors in world market turbulence during the 2008 financial crisis.

The Canadian dollar also lost early gains, moving down 0.31 of a cent to 96.43 cents US.

“We’re certainly having a difficult investing environment. It seems the momentum on the market is still somewhat to the downside,” said Adrian Mastracci, portfolio manager at KCM Wealth Management in Vancouver.

“Just at the touch of anything that looks and feels like a negative thing, bingo, they go the other way just so quickly,” Mastracci said.

The energy sector was down 0.71% as oil prices lost momentum. The June crude contract on the New York Mercantile Exchange lost 67 cents to US$69.41 a barrel — its lowest close since September 2009 — after going as high as US$72.52. Crude has fallen more than 20% over the last two weeks because of demand worries and the higher greenback.

A surging American dollar against the euro has helped drag down the price of oil and other commodities priced in U.S. dollars.

On the TSX, Imperial Oil (TSX:IMO) fell 70 cents to C$40.45 while Canadian Oil Sands Trust (TSX:COS.UN) shed 78 cents to $26.90.

The base metals sector shed 0.71%. Copper prices climbed after worries that China may tighten lending and slow the economy also helped push the metal sharply lower for the past two sessions. On Tuesday, the July contract on the Nymex gained 10 cents to US$3.03 a pound. Teck Resources (TSX:TCK.B) climbed 42 cents to C$33.53 while FNX Mining (TSX:FNX) fell 70 cents to $10.15.

Industrial stocks also lost early lift to lose 1.5% as Canadian Pacific Railway (TSX:CP) lost $1 to $57.60.

Canadian National shares were down 15 cents at $60.58 after it said Monday it plans to buy back up to three million of its shares in a private deal with an arm’s-length, third-party seller. The company said the price paid will be negotiated with the seller, but it will not be more than the prevailing market price at the time of the purchase.

@page_break@Gold stocks were also lower as the precious metal backed further away from Friday’s record intraday high of just under US$1,250 an ounce. The June bullion contract in New York fell $13.50 to US$1,214.60, with Kinross Gold Corp. (TSX:K) 18 cents lower to C$18.82.

The tepid performance added to other steep losses racked up since late last week. The TSX has lost 431 points or 3.5% over the past four sessions.

Meanwhile, Greece received euro14.5 billion (US$17.9 billion) in bailout loans from other European Union countries Tuesday, helping stave off default on around euro9 billion of debt due a day later.

New York markets finished firmly in negative ground amid mixed earnings and economic news.

The Dow Jones industrial average dropped 114.88 points to 10,510.95.

The Nasdaq composite index lost 36.97 points to 2,317.26 while the S&P 500 index was down 16.14 points to 1,120.8.

Wal-Mart Stores turned in quarterly earnings of 88 cents a share, three cents a share above analyst expectations. But same-store sales were down 1.4%, excluding fuel sales. Its shares were up 97 cents at US$53.70.

But shares in Home Depot Inc. lost early momentum to move down 86 cents to US$34.73 even as fiscal first-quarter net profit surged 41% to $725 million and revenue all of the retailer’s stores open at least a year increased 4.8%.

There were mixed readings from the U.S. housing sector.

Construction of new homes rose more than expected in April, up 5.8% to a seasonally adjusted annual rate of 672,000. But building permits, a gauge of future activity, sank 11.5% to an annual rate of 606,000, the lowest since October 2009. Analysts were expecting a slight dip to a rate of 680,000.

But there was good news on the inflation front as prices at the wholesale level fell in April, reflecting declines in energy and food.

The Labour Department said Tuesday that wholesale prices edged down 0.1% last month while core inflation, which excludes energy and food, rose 0.2%, slightly faster than expected. But over the past year, core prices are up just 1%.

The absence of inflation pressures means the Federal Reserve can continue to keep interest rates at record lows to bolster the economic recovery.

In other corporate news, paper products maker Cascades (TSX:CAS) announced it was launching an antibacterial paper towel to help cut bacteria spread by hand in the food processing and restaurant industries as well as in medical clinics and schools and and on aircraft and cruise ships. Its shares rose nine cents to $6.52.

A U.S. subsidiary of CGI Group Inc. (TSX:GIB.A) has won a US$73.2-million contract to modernize and maintain three government health websites that provide information to 44 million beneficiaries. CGI shares gave back seven cents to C$16.15.