TSX, Dollar riSe on worD of U.S. STimUlUS

The Toronto stock market closed higher after the U.S. Federal Reserve delivered on expectations for more help keeping the fragile economic recovery going.

The S&P/TSX composite index jumped 127.54 points to 12,360.16 after the U.S. Federal Reserve said it will spend $40 billion a month on a new round of bond purchases to boost the weak economy, and has not set an end date.

The money will be spent on mortgage backed securities to keep interest rates low, encourage lending and support the slow recovery of the housing sector.

The bank will also continue to buy long bonds under its so-called twist program, leaving them buying a total of US$85 billion per month for the balance of the year under the two programs. The Fed also says it will keep buying more bonds until the job market shows substantial improvement.

That could take awhile as the Fed also has lowered its outlook for growth this year, saying growth will be no stronger than 2% this year, down from a 2.4% forecast in June. However, it also expects growth to accelerate next year as much as 3%, up from June’s forecast of as much as 2.8%. For 2014, the Fed projected growth between 3 and 3.8%.

“The question is, how much of an effect it’s eventually going to have but right now everybody is buying it,” said John John- ston, chief strategist at Davis Rea Ltd.

“It’s not going to have a huge impact on the economy but it will certainly have a big impact on the markets.”

The TSX Venture Exchange climbed 20.24 points to 1,302.89.

New York markets shot higher to multiyear highs with the Dow Jones industrials up 206.51 points to 13,539.86.

The Nasdaq composite index jumped 41.52 points to 3,155.83, and the S&P 500 index was 23.43 points higher to 1,459.99.

The Canadian dollar gained 0.88 of a cent to a fresh 13-month high of US103.27¢ in the wake of the Fed announcement.

The stimulus program involves quantitative easing, which sees the central bank print more money to fund the bond purchases, which in turn weakens the currency.

The loonie has surged in value against the U.S. dollar since last week, up 2.35¢ since last Wednesday, after European Central Bank president Mario Draghi announced the ECB would buy government bonds to hold borrowing costs down for the most vulnerable eurozone members.

And the greenback further weakened over the last week as speculation grew the Fed was prepared to launch a third round of stimulus, particularly after August job creation figures disappointed even modest expectations.