TSX RISES AMID HOPES FOR CHINESE STIMULUS

The Toronto stock market closed modestly higher Wednesday amid optimism about the Chinese economy and cautious hopes about the pace of negotiations aimed at heading off a serious U.S. fiscal crisis.

The S&P/TSX composite index was 20.11 points higher to 12,157.29 as the market also found support from major acquisition activity in the real estate sector and significant cost-cutting moves from Canadian

Pacific Railway.

The TSX Venture Exchange was down 8.21 points to 1,184.54. The Canadian dollar rose US0.15¢ to US100.84¢.

Traders also looked to possible progress on a deal to avert the so-called U.S. “fiscal cliff ” of automatic spending cuts and tax increases at the start of the new year. Without a deal, the U.S. could well fall back into recession and push much of the world down with it.

“That’s what markets are focused on, will the U.S. careen off the fiscal cliff or not?” said John Stephenson, portfolio manager at First Asset Funds Inc.

New York markets were mainly higher after Bloomberg reported that some 40 Republicans have signed a letter calling for exploration of “all options” on taxes and entitlement programs, a signal that some rankand-file members could be ready to bargain. House Republicans have so far proposed a 10-year, US$2.2 trillion blueprint that calls for increasing the eligibility age for Medicare and lowering cost-of-living hikes for Social Security benefits.

But the White House has dismissed the GOP plan since it fails to raise the top two tax brackets for upper-income earners — a core promise of President Barack Obama’s election campaign.

Markets had started the session off on a positive note on hopes that China’s new leadership will back new measures to stimulate the world’s second-biggest economy.

The catalyst to the optimism had been a Chinese government pledge to maintain policies intended to strengthen the economy and an expression of willingness to “fine tune” them and make them more effective.

There were also reports that the government lifted investment limits for insurance companies and that the new Chinese leadership will remain focused on urbanization, which could ramp up infrastructure spending

China has been a major prop for a global economy still trying to recover from the financial collapse and subsequent recessions of 2008. Signs of stimulus are welcome because the Chinese government had to take steps to weaken the economy over the last couple of years to deal with higher than acceptable inflation.