TSX rally Stalls as gold Stocks decline
A strong rally on the Toronto stock market stalled Thursday despite a move by China to boost its flagging economy.
The S& P/ TSX composite index had earlier jumped almost 100 points amid an interest rate cut by China’s central bank and hopes that European officials are coordinating help for Spain’s troubled banking sector.
But the index later drifted 41.28 points lower to close at 11,592.12 following a hike of about 300 points in the past two days, partly because of a sharp drop in gold stocks as bullion prices declined. The TSX Venture Exchange slipped 6.56 points to 1,296.08.
The Canadian dollar was unchanged at US97.29¢.
U. S. markets also started off strong but weakened during the afternoon with the Dow Jones industrial average up 46.17 points to 12,460.96, the Nasdaq composite index down 13.70 points to 2,831.02 and the S& P 500 index off 0.14 of a point to 1,314.99.
Indexes slipped as Federal Reserve chairman Ben Bernanke told Congress that while the Fed is prepared to take further steps to boost the U. S. economy if it weakens, nothing is imminent.
“Bernanke is saying simply, we’ll act if we have to, if we don’t have to, we won’t,” said Allan Small, senior advisor at DWM Securities. “I think that should be enough for these markets because that tells you that there’s this backstop. That’s the way I look at it, but the market wants the goods. But if ( the Fed doesn’t deliver), who knows if this is just a temporary bounce.”
The Chinese central bank cut its benchmark lending rate for the first time in nearly four years as it tried to reverse a sharp economic slowdown. The interest rate on a oneyear loan will be reduced by a quarter percentage point to 6.31% effective Friday. Also, banks will reportedly be allowed to offer a 20% discount from the benchmark rate.
China has been a major force behind the economic recovery, driving prices for commodities and resource stocks on the Toronto market. But those stock prices have taken a beating over the past three months as the eurozone debt crisis has worsened and the Chinese economy has slowed.
Helping sentiment Thursday were reports that European Union officials have been exploring ways to help Spain’s fragile banking sector without imposing strict conditions on the Spanish government. The Financial Times said Wednesday that such a move could make Spanish officials less reluctant to accept international assistance. Spain’s banks are saddled with billions in soured property investments following the bursting of the country’s real estate bubble.