TORONTO - The Toronto stock market closed flat after investor enthusiasm over better-than-expected European economic data gave way to a new round of pessimism about the European debt crisis.

The S&P/TSX composite index came down from a 114-point advance to close up 0.42 of a point at 11,667.34 after Moody's Investor Services cut its rating on Greek government bonds to junk status.

Moody's cut the Greek rating by four notches -- to "Ba1" from "A3" -- and also downgraded Greece's short-term issuer rating to "Not-Prime" from "Prime." Moody's said the downgrades reflects concern that the country could fail to meet its obligations to cut its deficit and pay down its debt.

However, some analysts said a worst-case scenario for Greece wouldn't exactly be a surprise at this point.

"I believe, like most people, that they will eventually default," said Ian Nakamoto, director of research at MacDougall, MacDougall and MacTier.

"(It's) just a matter of when, so it is sort of anticlimactic. The debt problems will overhang us for years."

Moody's is the second of the three major agencies to accord Greek bonds junk status since Standard & Poor's did the same in late April.

Stock markets had initially surged following a report which showed a 0.8 per cent monthly increase in industrial production in April across the 16-country eurozone, which raised hopes that the economy will not be badly hurt by the European government debt crisis.

That piece of European economic news was particularly welcome as investors have been discouraged for weeks by the prospect that tough spending cuts by governments to manage high debt levels could possibly send the region back into recession.

Those worries have also recently pushed the euro to four-year lows against the U.S. dollar and left investors wondering about the future of the currency itself.

"The market was very concerned about a double-dip recession," added Nakamoto.

"I just don't see it. You're going to have growth, it's just the rate of growth is probably slowing rather than going into a minus."

The TSX Venture exchange lost 8.01 points to 1,452.78.

The Canadian dollar moved up 0.12 to 96.85 cents US.

Oil prices were also off early highs and gold prices moderated losses following the rating cut, while the euro was also slightly off earlier levels at $1.2227 US but still higher than the $1.2125 US it traded at on Friday.

The base metals sector gained 1.15 per cent per cent as the July copper contract on the New York Mercantile Exchange was ahead nine cents at US$2.99 a pound. Equinox Minerals (TSX:EQN) climbed eight cents to C$3.99 while Quadra FNX Mining improved 30 cents to C$12.55.

The TSX energy sector was ahead a slight 0.21 per cent as the July crude contract on the Nymex rose $1.34 to US$75.12 a barrel.

Suncor Energy (TSX:SU) shares slipped 24 cents to $33.51 after it said it will sell all of its stake in Petro-Canada Netherlands B.V. to Dana Petroleum PLC for $582 million. The sale is part of Suncor's plan to dispose of non-core assets after its takeover of Petro-Canada last summer.

The financials sector also moved higher as Royal Bank (TSX:RY) rose 74 cents to $53.74 while National Bank (TSX:NA) was up 77 cents at $58.01.

The gold sector was the weakest group as the August gold contract on the Nymex declined $5.70 to US$1,224.50 an ounce. Barrick Gold Corp. (TSX:ABX) declined $1.24 to C$43.32 and Goldcorp Inc. (TSX:G) faded $1.31 to C$43.85.

The Dow Jones industrial average moved down 20.18 points to 10,190.89.

The Nasdaq composite index rose 0.36 of a point to 2,243.96 while the S&P 500 index slipped 1.97 points to 1,089.63.

Investors hope other economic reports out this week will show the American economy working its way towards recovery.

Regional manufacturing reports are due out from the New York Federal Reserve on Tuesday and the Philadelphia Federal Reserve on Thursday, while a report on U.S. industrial production Wednesday is expected to show 0.7 per cent growth in May, according to economists polled by Thomson Reuters.

And a report Wednesday on U.S. housing starts for May is likely to show a dip. A government tax credit for home buyers expired in April.

In other corporate news, the board of BP PLC was discussing U.S. demands to suspend dividend payments to shareholders until the British company pays for the cleanup of the Gulf of Mexico oil spill. BP has a number of options regarding dividend payments and analysts believe the company is unlikely to scrap them altogether. Any decision is not expected to be announced immediately, with BP executives due to meet President Barack Obama in Washington on Wednesday. In New York, BP shares lost $3.30 to $30.67.

Ontario's Metrolinx transportation agency is exercising a $770-million option to purchase 182 light rail vehicles from Bombardier Transportation. Shares in the aircraft and rail transport giant rose four cents to $4.66.

Quebecor CEO Pierre Karl Peladeau is expected to lift the veil Tuesday on his plans to launch a conservative television network. He has called a news conference to announce a "new investment in Canadian media."

Quebecor has already filed an application for an English-language TV news network with the CRTC, the federal broadcast regulator. Quebecor Media (TSX:QBR.B) shares lost 65 cents to $33.20.