New York advances strongly; TSX posts 63-point gain amid rate hike anxiety after Tuesday's big drop

TORONTO – The Toronto Stock Exchange posted a solid, double-digit gain Wednesday, but it wasn’t nearly enough to make up for the sharp drop of the previous session.

Toronto’s S&P/TSX composite index closed up 63.35 points at 13,545.25, following a 377-point decline on Tuesday.

The Dow Jones industrial average of 30 stocks ended the day up 293.03 points at 16,351.38, while the broader S&P 500 index advanced 35.01 points to 1,948.86 and the Nasdaq gained 113.87 points to 4,749.98. All three lost more than 2.8 per cent of their value on Tuesday.

Markets have seen wild swings over the last two weeks as investors have been roiled by volatility in the Chinese markets, which kicked off a worldwide stock slump last month. There is also uncertainty about an upcoming meeting of the U.S. Federal Reserve.

Gareth Watson, vice-president of investment management and research at Richardson GMP Ltd., said the volatility will continue while investors await the American central bank’s decision on interest rates, due Sept. 17.

The Fed is widely expected to raise interest rates before the end of the year, and Watson said there is anxiety about what will happen when rates do start to rise.

“We have been going one way on rates for so long now that I think you have a market now trying to deal with and embrace the fact that we’re finally going to go in the opposite direction,” he said.

As rates rise in a recovering American economy, borrowing money will become more expensive. Watson said that over the long term higher rates will dampen returns from the stock markets as businesses and investors pay higher prices to borrow money.

“We’re going through that transition where investors have to change their expectations and that’s led to the increased amount of volatility over the past two weeks,” he said.

China remains in focus across financial markets. The Shanghai composite index opened more than four per cent lower, but turned positive by midday and eventually ended the day down just 0.2 per cent. The volatile trading led some analysts to suspect Beijing was intervening to support share prices before a two-day holiday.

Watson said some investors read the slide in Chinese markets as evidence that the country’s economy is lagging already lowered expectations.

“We’ve been talking about a slowing China for years,” he said. “But now there’s a conversation about a China that’s slowing down even more than expected.”

On commodity markets, the December gold contract fell $6.20 to US$1,133.60 an ounce, the October crude contract rose 84 cents to US$46.25 a barrel and the October contract for natural gas dropped 5.4 cents to US$2.648 per thousand cubic feet.

The loonie fell 0.28 of a cent to end the day worth 75.35 cents US.