TSX higher, U.S. Fed pledges to keep rates

flovestock

ultra-low "for extended period"

Wednesday June 22, 2011, 1:02 pm
By Malcolm Morrison, The Canadian Press

TORONTO - The Toronto stock market registered a solid gain early afternoon Wednesday on rising oil and gold prices and amid word that the U.S. Federal Reserve is keeping its key interest rate near zero as the recovery continues to unfold slower than hoped.

The S&P/TSX composite index was up 68.34 points at 13,131.66 while the TSX Venture Exchange was 22.55 points higher at 1,934.61.

The Fed said the U.S. economic recovery continues at a moderate pace, but more slowly than expected while job growth has also been weaker than anticipated. The U.S. central bank pledged to keep rates exceptionally low for an extended period.

At the same time, the Fed said that the pace of recovery was "expected to pick up in coming quarters" as factors holding back the economy are temporary.

The Fed also announced that the current round of stimulus, which involved buying US$600 billion of Treasurys, will end June 30.

Traders also focused on a news conference by Fed chairman Ben Bernanke at 2:15 p.m. EDT.

A recent soft patch in the American economy, along with worries about Greek default on the government's huge debt, has depressed markets in recent weeks.

The Canadian dollar was slightly lower against the U.S. dollar, down 0.05 of a cent at 102.79 cents US.

Traders felt a bit more confident that Greece can avoid a default after Prime Minister George Papandreou’s government won a confidence vote early Wednesday.

Investors hope that paves the way to the passage of another batch of austerity measures in a vote next Tuesday. The Greek Parliament needs to pass measures for additional budget cuts and new taxes and to back a privatization program so the country can get its hands on euro12 billion of rescue loans to stave off a disastrous default by mid-July.

Greece’s partners in the eurozone and the International Monetary Fund have made the cash contingent on a positive parliamentary vote on the austerity package.

But analysts were skeptical about how long this more positive outlook would last.

"It will dissipate because then they have to debate the actual austerity measures to get passed and that will not happen easily," said John Stephenson, vice-president and portfolio manager at First Asset Funds.

"There’s a little bit of a ray of hope but the task is so daunting," he said. "I mean they have to nationalize euro50 billion of stuff and (impose) euro28 billion of budget cuts."

The TSX surged 206 points Tuesday ahead of the key Greek vote but the main index has dropped more than two per cent in each of the last three weeks.

On Wednesday, the gold sector rose 1.9 per cent as nervous investors pushed the August bullion contract in New York up for a seventh session, gaining $7.80 to US$1,554.20 an ounce. Barrick Gold Corp. (TSX:ABX) rose 97 cents to C$43.93 and Goldcorp Inc. (TSX:G) gained $1.38 to C$48.55.

The energy sector was ahead 0.76 per cent as the August crude contract on the New York Mercantile Exchange was up 37 cents at US$94.54 a barrel.

Oil prices advanced after the U.S. Energy Information Administration reported a decline of 1.7 million barrels in U.S. crude supplies last week. The decline was larger than the 81,000-barrel fall reported by the American Petroleum Institute late Tuesday.

Canadian Natural Resources (TSX:CNQ) climbed 61 cents to C$39.76 while Suncor Energy (TSX:SU) advanced 43 cents to $37.85.

The base metals sector rose a slight 0.17 per cent as the July copper contract on the Nymex was down two cents at US$4.07 a pound. Teck Resources (TSX:TCK.B) lost 98 cents to C$44.49 while HudBay Minerals (TSX:HBM) rose 30 cents to $13.34.

The industrials sector was the biggest decliner with Bombardier Inc. (TSX:BBD.B) off 22 cents at $6.81.

New York markets declined ahead of Bernanke's news conference, with the Dow Jones industrial average down 11.69 points at 12,178.62.

The Nasdaq composite index was off 1.76 points to 2,685.5 while the S&P 500 index slipped 0.57 of a point to 1,294.95.

In other corporate news, FedEx Corp. says quarterly earnings rose 33 per cent to US$558 million or $1.75 a share as higher surcharges helped offset the rising cost of fuel. The Memphis, Tenn., package delivery company beat expectations by two cents a share while revenue increased 12 per cent to US$10.55 billion. Its shares rose three per cent to US$91.82.

AltaGas Ltd. (TSX:ALA) has received approval to begin construction on the C$235-million Gordondale gas processing facility 100 kilometres northwest of Grande Prairie, Alta. Its shares were up 24 cents at $25.90.

AGF Management Ltd. (TSX:AGF.B) said higher investment management revenue helped it to a gain of almost 19 per cent in second-quarter net profits to $32.7 million. The Toronto-based global wealth management company also hiked its quarterly dividend by almost four per cent. AGF shares were two cents higher at $18.64.