Toronto market posts February decline as banks disappoint

The facade of the original Toronto Stock Exchange building is seen in Toronto

By Fergal Smith

(Reuters) -Canada's benchmark stock index edged lower on Tuesday, adding to its monthly decline, as domestic data showed the economy stalling in the fourth quarter and two top lenders pointed to economic pain ahead.

The Toronto Stock Exchange's S&P/TSX composite index ended down 38.94 points, or 0.2%, at 20,221.19.

For the month, it lost 2.6%, giving back some of its January gain, as investors worried that the Federal Reserve would raise interest rates higher than previously thought.

"It feels like markets in general are just trying to hang on for month-end," said Greg Taylor, a portfolio manager at Purpose Investments.

"The banks were a little disappointing this morning ... I think that's acting as a drag on the markets overall and people are getting nervous heading into March with a lot of big economic data events coming up."

The Bank of Canada is due to make an interest rate decision on March 8, while Canadian and U.S. employment data is due two days later.

The Canadian economy unexpectedly stalled in the final three months of 2022, but likely rebounded in January, data showed on Tuesday.

Shares of Bank of Nova Scotia tumbled 5.7% and Bank of Montreal ended 1.2% lower after the two banks stockpiled rainy-day funds and reported a fall in first-quarter profit.

"Banks are preparing for a more challenging macroeconomic environment and the earnings that we saw are guiding towards some clouds on the horizon," said Angelo Kourkafas, investment strategist at Edward Jones Investments.

The heavily-weighted financials sector fell 0.4%, while energy ended nearly 1% lower.

Baytex Energy Corp slumped 9.8% after the oil and gas producer agreed to buy U.S. peer Ranger Oil Corp for $2.5 billion.

(Reporting by Fergal Smith; Additional reporting by Johann M Cherian in Bengaluru; Editing by Sriraj Kalluvila and Alistair Bell)