TSX drops on emerging market fears; TransCanada up

By John Tilak TORONTO (Reuters) - Canada's main stock index fell on Friday on worries about emerging markets and on mixed U.S. and European economic data, which offset a gain in TransCanada Corp after a U.S. report played down the impact building the company's Keystone XL pipeline would have on Canadian oil sands development. The U.S. State Department report raised the pressure on President Barack Obama to approve the TransCanada project, which environmentalists oppose strongly, saying it will increase the pace of climate change by encouraging oil sands growth. Also hurting the market, data from the euro zone showed inflation fell in January, missing market expectations and coming in below the European Central Bank's target. In the United States, figures showed U.S. consumer spending rose more than expected in December, but weak income growth suggested the world's biggest economy could cool off in the first quarter. Global markets have had a turbulent ride in recent days as volatility in some emerging market currencies and doubts about the pace of China's economic growth has hit investor sentiment hard. The U.S. Federal Reserve's decision to further scale back its stimulus program exacerbated the emerging markets concern as the stimulus program has helped supply liquidity to emerging markets. The Toronto Stock Exchange's benchmark index ended a choppy week in the red, capping off a string of steep dives and sharp gains. But the index recorded a monthly rise, outperforming U.S. stocks, helped by an improved showing by its materials sector. "Globally volatility has definitely picked up in the last couple of weeks," said Youssef Zohny, a portfolio manager at Stenner Investment Partners, a multifamily office within Richardson GMP. "But commodities are definitely leading to some outperformance in the Canadian market," he added. The benchmark S&P/TSX composite index <.GSPTSE> closed down 40.34 points, or 0.29 percent, at 13,694.94. Eight of the 10 main sectors on the index ended lower. Financials, the index's most heavily weighted sector, dropped 0.9 percent. Royal Bank of Canada gave back 1.1 percent to C$68.93, and Toronto-Dominion Bank slipped 0.9 percent to C$96.32. Energy shares were up 0.3 percent, with TransCanada's gains offsetting broader weakness spurred by lower oil prices. TransCanada jumped 1.2 percent to C$48.42, while Enbridge Inc , another pipeline company, edged up 0.3 percent to C$46.76. But oil and gas producer Talisman Energy Inc fell 0.7 percent to C$11.99. In corporate news, Canadian National Railway Co reported higher quarterly earnings late on Thursday, but the results were hit by extreme winter weather in December and came in slightly below estimates. The stock added 0.5 percent to C$59.61. Manitoba Telecom Services Inc fell nearly 4 percent to C$29.62 after receiving a negative Supreme Court decision over a pension lawsuit. ($1=$1.11 Canadian) (Editing by Peter Galloway)