CANADA STOCKS-TSX falls as Middle East uncertainty weighs, but energy gains cap declines

By Rashika Singh and Ragini Mathur

March 27 (Reuters) - Canada's main stock index inched lower on Friday as uncertainty around a resolution to the Middle East conflict kept investors on edge, though gains in energy and mining shares capped losses in the resource-heavy market.

At 10:18 a.m. ET, the S&P/TSX Composite Index .GSPTSE was down 0.1% at 31,858.43, extending losses from the previous session and paring some of the week's earlier gains.

The index is still on track to end the week roughly 1% higher, though March could be its worst month since June 2022 if broader losses hold.

U.S. President Donald Trump on Thursday extended his deadline for Iran to reopen the Strait of Hormuz or face the destruction of its energy plants, after Iran rejected his 15-point proposal to end the war.

However, oil prices rose on Friday as investors remained uncertain about when the critical waterway would be reopened. O/R

Energy shares .SPTTEN rose 1.7% to lead gains on the TSX.

Mining shares .GSPTTMT also edged up 1.4% as gold jumped on dip-buying and dollar weakness.

But bullion is still on track for a fourth straight weekly drop, with gains capped by rising expectations of global interest-rate hikes as inflation concerns intensify.

The information technology sub-index .SPTTTK led losses, meanwhile, falling 1.4%.

"Everything outside of energy and metals is weighing on equity markets. Oil is a tailwind, but most businesses use oil directly or indirectly, so the broader pressure in U.S. markets is spilling over into Canadian markets," said Brian Madden, chief investment officer at First Avenue Investment Counsel Inc.

Traders expect the Bank of Canada to hold rates steady at its April meeting, but markets are pricing in nearly three hikes by the end of the year, according to LSEG data.

But Schroders argued Canada's weakening labor market and slowing core inflation are inconsistent with the two hikes currently priced into Canadian bond markets for 2026.