TSX up modestly, traders shrug off Spanish downgrade

Dollar closes at $ 102.18 US, oil at $ 92.07 US a barrel

TORONTO — The Toronto stock market was slightly higher Thursday as resource stocks rose alongside prices for oil and metals.

The S& P/ TSX composite index was well off session highs by midafternoon, gaining 21.53 points to 12,233.95 following three days of losses. Markets have been depressed by fresh signs of a slowing economic recovery, including another downward revision of global growth by the International Monetary Fund and forecasts of lower demand by resource giant Alcoa Inc.

The TSX Venture Exchange was 2.21 points lower at 1,299.94.

Commodity prices also supported the Canadian dollar, which was up 0.21 of a cent at 102.18 cents US.

New York markets were also off the best levels of the day with the Dow Jones industrials down 18.58 points to 13,326.39 on top of two back- to- back, triple- digit slides. The Nasdaq composite index slipped 2.4 points to 3,049.38 while the S& P 500 index ticked up 0.28 of a point at 1,432.84.

Indexes had earlier been well into positive territory as a much better than expected read on U. S. jobless insurance claims raised hiring prospects. Traders also looked ahead to key earnings reports Friday from U. S. banking giants, including JPMorgan Chase and Wells Fargo.

The U. S. Labour Department said the number of people seeking unemployment aid plummeted last week by 30,000 to a seasonally adjusted 339,000, the lowest level in more than four years. The fourweek average, a less volatile measure, dropped by 11,500 to 364,000, a six- month low.

Traders appeared to take in stride a move by Standard & Poor’s to cut its rating on Spain’s debt by two notches to BBBminus, leaving the country on the verge of non- investment grade, or junk, status.

The Spanish government has so far refused to tap a new European Central Bank bond- buying facility that has been largely designed to keep a lid on the country’s borrowing rates. But some analysts think the downgrade will help push the government to finally request the help.

Even so, others think traders are in danger of letting their guard down.

“We probably don’t focus enough on Europe. I still think it’s simmering and could blow up in our face,” said Jim Muir, director at Fraser Mackenzie.

“But we’re all growing very complacent with the problems over there. One day we’ll wake up and there could very well be another Lehman Brothers moment happen there. But history shows we do work our way through these problems.”

Earnings expectations are low for the third quarter as the debt crisis continues to take a toll on the economies in Europe, affecting the results of multinationals. The malaise has also spread to developing economies such as China.

“Expectations are for a 2.1 per cent year- over- year decline in S& P 500 operating earnings — the first year- over- year drop since the recession,” said BMO Capital Markets senior economist Robert Kavcic.

“Also, half of the 10 major sectors are expected to be in the red, so the earnings slowdown is relatively broad based and not just a one- sector phenomenon.”

Merger and acquisition news also helped support markets.

The Wall Street Journal reported that Sprint Nextel is in advanced talks to be acquired by Japanese cellphone company Softbank Corp. in a transaction valued at more than US$ 12.8 billion. Sprint Nextel shares surged 14.09 per cent to US$ 5.75 in New York as the company confirmed during the morning that there have been talks with Softbank on a possible transaction.

Most TSX sectors were higher while resource stocks led gainers as prices for oil and metals advanced.

The November crude contract on the New York Mercantile Exchange was up 82 cents at US$ 92.07 a barrel. Canadian Natural Resources ( TSX: CNQ) rose 21 cents to C$ 30.01.