Canada's main stock index took a breather on Thursday after hitting a new closing highs in the previous session, as banking stocks fell amid worries about the impact of a new corporate tax hike proposed by the ruling Liberal Party.

The Toronto Stock Exchange's S&P/TSX composite index fell 83.17 points, or 0.4pc, to 20,504.15 points, after ending at a new closing high on Wednesday.

Despite top Canadian lenders reporting stronger-than-expected earnings this week, bank stocks fell as the market digested the impact of the new tax proposal.

On Wednesday, the Liberals said they would hike the rate to 18pc from 15pc on all earnings over C$1 billion ($793 million) and impose a special dividend to be paid by them.

"Some digestion is occurring in the marketplace with what happened yesterday," Goodreid Investment Counsel Portfolio Manager Brian Madden said. The banks index dropped 1.4pc on Thursday.

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Investors are looking ahead to U.S. Federal Reserve Chair Jerome Powell's speech at the annual Jackson Hole, Wyoming, event on Friday for cues on the timeline of monetary tapering.

"It's been a forum where the Fed has often hinted at or announced a bold new direction on monetary policy. There's perhaps some minor consternation that they might announce tapering or something like that tomorrow, although I don't think they will," Madden added.

Recouping losses from last week, the benchmark index was set to record its seventh straight month of gains driven by heavyweight technology stocks.

HIGHLIGHTS

Royal Bank of Canada shares ended down 0.4pc, Toronto-Dominion Bank lost 2.4pc and Canadian Imperial Bank of Commerce's dropped 2.1pc.

The largest percentage gainers on the TSX were ARC Resources, up 4.8pc; Tourmaline Oil Corp, up 4.0pc; and Sea bridge Gold, up 3.3pc.

Lithium Americas was the top loser, falling 5.3pc, followed by Intertape Polymer Group, down 2.6pc; and Real Matters, down 2.5pc.