TSX pulls back from 2-month high as energy, financials fall

Canada's main stock index consolidated some recent gains on Tuesday as financial and energy shares lost ground, while investors weighed domestic inflation data that could support a shift to interest rate cuts over the coming months. The Toronto Stock Exchange's S&P/TSX composite index ended down 136.50 points, or 0.7 per cent, at 20,109.97, after posting on Monday its highest closing level since September 18.

"I think the market is taking a bit of a breather. It is working off some overbought levels," said Brandon Michael, senior investment analyst at ABC Funds.

"There was a slowdown in Canadian inflation and investors are now leaning towards (rate) cuts. It's not a matter of if central banks are going to cut but its when and its how much. And that's going to be a tailwind for stocks in the future."

Canada's annual inflation rate eased more than expected to 3.1 per cent in October and core inflation measures edged down to their lowest levels in about two years.

Money markets are betting that the Bank of Canada's tightening campaign is at an end and the central bank will shift to rate cuts as soon as April.

Canada's main stock index is set to rise less than previously thought over the coming year as a slowdown in the global economy weighs on the outlook for corporate earnings, a Reuters poll found.

The energy sector fell nearly 1 per cent as oil settled 0.1 per cent lower at $77.77 a barrel. Heavily-weighed financials also ended lower, losing 0.9 per cent, and consumer staples were down 1.7 per cent.

Capital Power Corp shares were among the biggest decliners. They sank 6.3 per cent after the company said it was acquiring two U.S.-based natural gas-fired generation facilities for $1.1 billion.

The only major sector not to lose ground was materials. It added 0.7 per cent as gold climbed 1.1 per cent, approaching $2,000 per ounce.