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Toronto Stock Exchange main index down 0.77%

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TSX Drop led by commodity-based companies

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Gold mining shares up as gold prices rise

(Updates with fresh prices, comments and context)

By Promit Mukherjee and Nikhil Sharma

July 5 (Reuters) - Canada's main stock index posted a

sharp fall on Friday, ending this week's rally as fears that the

country might enter a recession overshadowed lackluster U.S. and

Canada jobs data that advanced and firmed rate cut hopes.

The Toronto Stock Exchange's S&P/TSX composite index

ended down 0.77% to 22,072.21 points, and closed at

almost the same level seen a month ago.

The index had edged up to a near five-week high on

Thursday driven by resource companies, pretty much the same

basket of stocks that drove the index down in the day.

"The market might be interpreting that as the chances of a

recession are higher here in Canada, the chances of a soft

landing are lower," said Josh Sheluk, chief investment officer

at Verecan Capital Management.

Usually resources companies - mining and materials - react

positively to rate cut bets, which gained traction after data

from U.S. showed that unemployment rate high a two and a half

year high of 4.1%.

Markets are pricing in a 75.2% chance of a September

rate by the Fed.

The data also coincided with Canadian labor force survey

report which said that the jobless rate in the country jumped to

a 29-month high of 6.4%.

"Weaker economy generally means weaker environment for those

more cyclical businesses... that's the reaction that you're

seeing in those resource exploration and commodity-based

companies," Sheluk said, about the u-turn in the shares of

commodity-based companies.

While the Canadian data triggered markets to advance bets

for a 25 basis point cut by the Bank of Canada in July to 60%

from 40% on Thursday, economists warned that a consistent rise

in jobless numbers could be hinting at recessionary

fears.

"A sustained deterioration is typically only seen during

recessions," Doug Porter, chief economist at BMO Capital

Markets, wrote in a note, pointing to the 1.4-percentage-point

rise in Canada's jobless rate since January last year.

The weakness in the U.S. jobs market boosted the tech-heavy

Nasdaq and benchmark S&P 500 indexes with most mega cap stocks

hitting all-time highs during the day.

In north of its border, it was the gold mining shares in

Canadian companies that tried to offer support to the composite

index with shares in OceanaGold Corp ( OCANF ), Calibre Mining

Corp ( CXBMF ) and Equinox Gold Corp ( EQX ) all rising by more

than 5%.

These were largely driven up by a rise in gold prices

which extended gains on Friday to their highest level in over a

month.

The yield on the Canadian 10-year benchmark bond

fell over 10 basis points to 3.5%, mirroring declines in its

U.S. counterpart.

In corporate news, Teck Resources' ( TECK ) shares rose by

almost a percent after the Canadian government approved

Switzerland-based miner Glencore's ( GLCNF ) $6.93 billion

takeover of its steelmaking coal unit with strict conditions to

preserve jobs.