TSX flat, China's manufacturing sector grows for first time in 13 months

TORONTO – The Toronto stock market was little changed as traders weighed news that China’s manufacturing sector is finally back in expansion mode and looked to negotiations aimed at avoiding a major U.S. fiscal crisis.

The S&P/TSX composite index added 2.86 points to 12,242.22 as traders also took in a major deal in the food sector.

Dairy and grocery products company Saputo (TSX:SAP) is making a major acquisition. The Montreal-based company is paying $1.45 billion to buy Morningstar Foods, a 2,000-employee company that makes dairy and non-dairy products for the U.S. market.

Saputo has said it plans to expand in the United States but has downplayed speculation it might acquire Hostess, the company that makes Twinkies snack cakes. Saputo shares gained $1.61 or 3.5 per cent to $47.65.

Investors were particularly happy to see that HSBC’s Purchasing Managers’ Index for the world’s second-biggest economy rose to 50.5 in November from October’s 49.5. Any reading above 50 indicates activity is expanding. It was the first time in 13 months that China’s manufacturing sector emerged from contraction.

“The rising trend remains encouraging and continues to reinforce our expectation that China’s growth will pick up in the fourth quarter,” said BMO Capital Markets senior economist Carl Campus in a commentary.

Growth in China is particularly welcome since so many other countries are faltering to one degree or another. China is just starting to revive after the government took steps to slow the economy in order to reduce high inflation.

The TSX Venture Exchange slipped 2.8 points to 1,218.1.

The Canadian dollar was up 0.03 of a cent to 100.67 cents US.

U.S. indexes were also higher as traders also looked to negotiations aimed at avoiding a fiscal crisis by the end of the year.

The Dow Jones industrials gained 27.99 points to 13,053.57, the Nasdaq composite index rose 13.52 points to 3,023.76, and the S&P 500 index was ahead 4.6 points to 1,420.78.

On the economic front, economists expect that U.S. manufacturing expanded in November, though at slower pace because of the effects of Superstorm Sandy. The Institute for Supply Management releases its index at 10 a.m. Eastern.

North American stock markets ended last week little changed as the end-of-year deadline approaches for averting the “fiscal cliff,” a combination of tax increases and across-the-board spending cuts set to automatically take place at the first of the year if there’s no compromise agreement.

The shock of seeing the drastic fiscal measures go into effect in the new year would cut economic growth and likely push the U.S. back into recession.

Obama proposes US$1.6 trillion in higher taxes over a decade and heightened presidential power to raise the U.S. government’s debt limit. In exchange, Obama proposes $600 billion in spending cuts, including some to Medicare. He also wants $200 billion in new spending to support economic recovery.

House Speaker John Boehner, a key Republican in the U.S. Congress, says Obama’s plan isn’t serious. He says Republicans have plenty of ideas, but he’s not giving specifics

The TSX was partly held back by a 0.85 per cent drop in the tech sector. Research in Motion Ltd. (TSX:RIM) lost 26 cents or 2.24 per cent to $11.33 as its stock was downgraded to sell from hold at Canaccord. The firm cited RIM’s recent share strength and doubts the new BB10 lineup, which is being launched at the end of January, can turn its long-term business trends.

The gold sector was down 0.77 per cent while bullion gained $3.40 to US$1,716.10 an ounce.

Gainers were led by a 0.8 per cent rise in the base metals sector even as copper prices failed to find lift from the Chinese data with the March contract unchanged at US$3.65 a pound. China is the world’s biggest consumer of the metal, which is viewed as a proxy for the global economy as it is used in so many applications.

The energy sector gained 0.2 per cent while the January crude contract on the New York Mercantile Exchange up $1.19 to US$90.10 a barrel.

In other corporate news, Canadian Pacific Railway Ltd. (TSX:CP) is shunting aside plans to build a 420-kilometre extension to serve coal mines in the Powder River Basin, which underlies parts of Montana and Wyoming. CP will take a $180-million non-cash charge on its books as a result of a decision to defer the plan indefinitely because of a deterioration in the market for thermal coal, which is primarily burned to produce power. Its shares were down 67 cents to $92.03.

Automakers are reporting sales figures for November. Chrysler was first out of the gate Monday, announcing its U.S. sales rose 14 per cent last month, making it the best November since 2007. Chrysler says its sales were led by the Dodge brand with sales up 32 per cent over November of last year.

Toronto-based conglomerate Onex Corp. (TSX:OCX) has agreed to pay US$165 million to buy 50 per cent of American aircraft leasing company BBAM. BBAM has more than 200 airlines as customers and provides them with aircraft leasing, financing and management services. Onex shares dipped 20 cents to $40.50.

European bourses advanced as London’s FTSE 100 index gained 0.42 per cent, Frankfurt’s DAX was ahead 0.8 per cent and the Paris CAC 40 climbed 1.2 per cent.

Earlier, Japan’s Nikkei 225 index rose 0.1 per cent, South Korea’s Kospi gained 0.4 per cent, Australia’s S&P/ASX 200 added 0.6 per cent but Hong Kong’s Hang Seng tumbled 1.2 per cent.

Mainland Chinese stocks were lower despite the more upbeat manufacturing survey as the Shanghai Composite Index fell one per cent. The smaller Shenzhen Composite Index slid 2.5 per cent.

Analysts said this was likely due to the fact that more upbeat indicators may reduce the Chinese government’s willingness to provide new stimulus to the economy. While the Chinese manufacturing survey was a positive signal for global demand, it lowered the chances of easier credit for Chinese companies.