TSX falls as commodities slide

North American markets traded lower Wednesday as gasoline futures tumbled so sharply that the New York Mercantile Exchange briefly halted energy trading.

The S&P/TSX composite index closed down 222.32 points, or 1.6 per cent, at 13,419.74.

New York markets were also lower following three days of gains, weighed down as well by a worsening U.S. trade deficit.

The major U.S. indices each lost one per cent, with the Dow Jones industrials down by 130.33 points to 12,630.03, the Nasdaq composite off 44 points to 2,845.06 and the S&P 500 lower by 15.08 points to 1,342.08.

June oil closed below $100 on the New York Mercantile Exchange, falling $5.67, or 5.5 per cent, to $98.21 US a barrel.

Gasoline fell by 25 cents at midday in New York, the maximum fall allowed under trading rules, and leading to a halt in trades in Nymex crude and gasoline.

Gasoline futures tumbled almost eight per cent after a government report added more evidence that Americans are driving less because of higher pump prices.

Analysts said motorists have been forced to conserve gasoline with pump prices close to a national average of $4 per gallon.

"That $4 number is not just having a psychological impact, but a direct impact on drivers," energy consultant Jim Ritterbusch said. "Normally, with the economy recovering, you'd expect gasoline demand to go up, but that's not happening."

The TSX energy sector lost 2.6 per cent after the American Petroleum Institute said that crude inventories rose 2.9 million barrels last week, more than the increase of 1.6 million barrels that analysts expected.

U.S. crude supplies rise

A U.S. government report showed that American crude supplies rose to the highest level in two years, rising by 3.78 million barrels to 370.3 million last week. Gasoline inventories increased 1.28 million barrels to 205.8 million.

Also, the U.S. Energy Department's Energy Information Administration said it now expects global demand for oil to grow by 1.4 million barrels a day in 2011, about 120,000 barrels a day less that it forecast a month ago.

Also roiling energy markets was a move by CME Group, the owner of the Nymex, to raise daily trading limits for certain energy contracts. It recently boosted daily price limits for crude oil to $20 US and for heating oil and gasoline to 50 cents US.

High oil prices helped push the U.S. trade deficit up six per cent to US$48.2 billion in March from $45.4 billion in February.

U.S. companies sold more goods and services to customers abroad, but it wasn't enough to make up for an 18 per cent rise in oil imports.

The June gold contract in New York closed down $15.50 to $1,501.40 US an ounce.

Commodities were also weighed down by Chinese government data released Wednesday showing inflation remains stubbornly high while industrial output dropped more than expected in April.

Chinese inflation a concern

"The numbers out of China are really a concern for the market in Canada with 50 per cent of the market leveraged towards resources," said Jeff Bradacs, senior investment analyst at Manulife Asset Management.

"The higher inflation numbers still are above the central bank's target and that's increasing really the prospects for further tightening, which would be a negative for commodities. And that's what we're seeing in Canada (with) the resource sector hit today."

Chinese consumer prices rose 5.3 per cent over a year earlier, driven by an 11.5 per cent jump in food costs. The reading exceeded the government's four per cent target for the year.

Also, growth in China's industrial output eased in April, declining from March's 14.8 per cent to 13.4 per cent, below the 14.5 per cent reading that economists expected.

The Canadian dollar was lower against the greenback despite falling commodities, closing down 0.37 of a cent to 104.05 cents US. The loonie fell despite the fact that Canada's trade surplus increased sharply in March.

Exports exceeded imports by $627 million, up from $356 million in February as exports increased 3.5 per cent and imports grew 2.8 per cent.