TORONTO -

The Toronto stock market closed little changed Wednesday at the end of a volatile session amid worries about a global economic recovery.

The S&P/TSX composite index closed 12.99 points higher to 10,686.83, lifted by gains in the financials sector, after initially tumbling more than 150 points after China's benchmark Shanghai index plunged more than four per cent.

The slide in China was triggered by worries about profits, the strength of China's recovery and possible changes in Beijing's easy credit policy that has helped to fuel the strong run in Chinese stocks this year.

"The authorities have been very successful in sort of flooding the Chinese system with credit, with liquidity and so loan growth has been very, very strong," said Norman Raschkowan, chief investment officer at Mackenzie Financial Corp.

"And I think having just gone through a credit bubble, deflation here, I think people are looking at what's going on in China with a little bit of concern."

Markets made a strong move into positive territory late in the morning, led by a strong showing in the energy sector after data showed a large drawdown in American crude oil stocks last week.

But the energy sector only closed up a modest 0.28 per cent even as the news sent the September crude contract on the New York Mercantile Exchange up $3.23 to US$72.42 a barrel.

The TSX is up about 40 per cent since early March on rising hopes for a strong economic recovery, but recent signs of weakness at the consumer level in the United States suggests the rally may be looking stretched.

"We think the consumer is going to continue to rebuild their savings and liquidity and address their balance sheet issues and so consumer spending will probably remain soft," Raschkowan said.

The Canadian dollar also shook off early declines to advance 0.51 of a cent to 91.27 cents U.S. as Statistics Canada reported that prices fell in July on an annual basis and on a month-to-month basis, dipping 0.3 per cent from June.

Canada's annual inflation rate slid to the lowest level in 56 years last month, as overall prices fell 0.9 per cent from where they stood last July.

Meanwhile, Statistics Canada's composite leading index rose 0.4 per cent after small declines in May and June were revised upward to no change. The agency says July's increase was the first advance since August 2008.

The TSX Venture Exchange was 10.45 points higher to 1,176.95.

U.S. markets also bounced off early lows as the Dow Jones industrial average moved up 61.22 points to 9,279.16.

The Nasdaq composite index climbed 13.32 points to 1,969.24, while the S&P 500 index rose 6.79 points to 996.46 amid a pair of disappointing earnings reports.

Hewlett-Packard Co. edged past Wall Street's profit and sales forecasts but its shares still lost 13 cents to US$43.83.

Shares of farm equipment maker Deere & Co. lost $1.31 to US$43.78 after it said its third-quarter profit fell 27 per cent to US$420 million as the global recession continued to depress sales.

Aluminum giant Alcoa Inc. was also down 44 cents to US$12.48 after an analyst downgraded shares of the company because their price topped his target and amid fears already weak industry fundamentals could further deteriorate.

On the TSX, the financial sector was ahead 0.5 per cent with TD Bank (TSX:TD) ahead $1.08 to $63.58.

The base metals sector was the weakest group, down 1.69 per cent as the September copper contract in New York inched a tenth of a cent lower to US$2.7605 a pound. Teck Resources (TSX:TCK.B) declined 59 cents to $27.66.

The TSX gold sector was flat as the December bullion contract in New York rose $5.60 to US$944.80.

In other corporate news, Imperial Oil Ltd. (TSX:IMO) shares moved up 80 cents to $39.60 after a spokesman said the company is considering moving ahead with three expansion phases to its massive Cold Lake oilsands project that had been approved in 2004. The project could include a sulphur recovery plant and a co-generation facility.

Sears Canada Inc. (TSX:SCC) shares fell 25 cents to $20.75 after it said quarterly profits came in at $49.1 million, down sharply from $61.5 million a year ago as tighter consumer spending and lower summer temperatures cooled sales across the country.

Export Development Canada is becoming the leading backer behind a $1-billion fund to provide debtor-in-possession loans to companies needing protection from creditors while undergoing restructuring or reorganization. The Crown corporation has put up $450 million and Toronto-based Brookfield Asset Management Inc. (TSX:BAM.A) another $100 million into the fund that the two parties expect will grow to $1 billion. Brookfield shares dipped two cents to $22.23.

Shares in uranium miner Forsys Metals Corp (TSX:FSY) slid 82 cents to 13.18 per cent to $5.40 after it said Industry Canada has put a hold on the proposed takeover of the company by George Forrest International Afrique S.P.R.L.