Bay Street Week Ahead-Canadian miners could still shine

By Jennifer Kwan

TORONTO, July 4 (Reuters) - The slump this week in mining and raw materials stocks, one of Canada's top performing sectors, is likely to be just a hiccup unless the global economy takes a long and lasting turn for the worse.

The materials index , which makes up nearly 20 percent of Toronto Stock Exchange's main S&P/TSX composite index .GSPTSE, fell 4.9 percent in a holiday-shortened week, with Canadian markets closed on Tuesday and U.S. ones closed early on Thursday and all day Friday.

But the materials index is still about 17 percent above levels seen at the start of the year, and Ian Nakamoto, director of research at MacDougall, MacDougall & MacTier, said it is likely to remain a pillar of the Canadian market.

"We're in the area of selective commodity exposure," Nakamoto said. "Certain commodities will continue to do well and others are sort of languishing."

He said good profits will continue to attract money to the materials sector because of disappointments in other sectors. Fundamentals still look good for mining firms, but the "dark cloud is the sentiment toward the global economy".

"The doom and gloom, or the bears, took down the U.S. and I guess that sentiment is spilling over into Canada," he said.

U.S. markets fell into traditional bear market territory this week, described as a 20 percent drop from peak levels.

Andrew Martyn, portfolio manager at Davis-Rea, said the retreat in the materials index reflects many factors, including fears over a darker economic outlook and the soaring price of oil, which has lowered demand for many commodities.