By John Tilak
TORONTO (Reuters) - Canada's main stock index dropped to its lowest in two weeks on Monday as hopes faded that a U.S. budget impasse would be resolved in time to prevent a partial government shutdown.
But for the third quarter, the Toronto stock market's benchmark index recorded its biggest quarterly gain in a year, outperforming the S&P 500 <.SPX> index, Wall Street's benchmark.
Monday's losses were limited by a 14.2 percent jump in the shares of Brookfield Office Properties after parent company Brookfield Property Partners said it will buy the 49 percent of Brookfield Office it does not already own for $5 billion in a deal that would consolidate the companies' $45 billion in real estate assets.
Dampening investor sentiment was political uncertainty in Italy, where some senators from Silvio Berlusconi's center-right party looked ready to form a breakaway group unless the former premier backed down on his hard line to bring down Italy's government and head to elections.
The U.S. Congress, still in partisan deadlock on Monday over Republican efforts to halt President Barack Obama's healthcare reforms, was on the verge of shutting down most of the U.S. government starting on Tuesday morning.
"There is some nervousness as we approach the shutdown deadline, but there are no signs of panic yet," said Elvis Picardo, strategist at Global Securities in Vancouver, adding that the Canadian market is viewing the debt crisis as a U.S. issue.
"Investors believe that there will be a resolution to this problem," he added. "It may not occur today or tomorrow, but it's certainly what they're hoping for."
The Toronto Stock Exchange's S&P/TSX composite index <.GSPTSE> closed down 56.89 points, or 0.44 percent, at 12,787.19, after falling s low as 12,734.71, its lowest since September 16. All of the 10 main sectors on the index were in the red.
For the third quarter, the TSX advanced 5.4 percent, compared with a 4.7 percent gain by the S&P 500.
Helped by a rebound in appetite for commodities, the benchmark Canadian index has been regaining ground lost in the first half of the year.
"I doubt if we've seen the highs for the year for the TSX," Picardo said. "I still think there are more legs to the rally."
Tracking a drop in the price of oil, shares of energy producers shed 0.5 percent. In the group, Suncor Energy Inc was down 1.3 percent at C$36.83, and Canadian Natural Resources Ltd gave back 0.2 percent to C$32.37.
Financials, the index's most heavily weighted sector, fell 0.6 percent. Royal Bank of Canada dropped 0.8 percent to C$66.00.
But gold-mining stocks eked out a small gain, with Goldcorp Inc climbing 0.9 percent to C$26.80, and Barrick Gold Corp adding 0.4 percent to C$19.18.
SNC-Lavalin Group jumped 2.4 percent to C$42.35 after the engineering and construction company said it was looking to sell an equity stake in AltaLink, Alberta's largest regulated electricity transmission company.
Shares in Canadian oil company Petrominerales soared about 51 percent to C$11.70 after it agreed to be taken over by Pacific Rubiales , Colombia's largest private oil producer.
(Additional reporting by Cameron French; Editing by Peter Galloway)