TSX higher as Fed delivers stimulus, Bernanke warns of fiscal cliff consequences

TORONTO – The Toronto stock market was higher Wednesday and commodity prices gained ground as the U.S. Federal Reserve launched another dose of economic stimulus.

The U.S. central bank also tied its record low interest rates to a specific level of unemployment.

The S&P/TSX composite index rose 70.74 points to 12,353.09 led by a strong run up in gold stocks as inflation worries grew after the Fed announced a new bond-buying program to replace one that’s about to expire.

TSX Venture Exchange was up 1.01 points at 1,184.94.

The Canadian dollar rose 0.15 of a cent to 101.55 cents U.S.

But despite the fresh stimulus and greater certainty about rates, New York indexes were tepid as Fed chairman Ben Bernanke warned that the U.S. economy is already being hurt by the “fiscal cliff” standoff in Washington.

The cliff scenario involves an end-of-year deadline when automatic spending cuts and tax increases are set to take place. With economic growth already weak, the worry is that the two moves would send the U.S. back into recession, sending shockwaves around the world.

However, he added that the Fed believes the crisis will be resolved without significant long-term damage.

The Dow Jones industrials slipped 2.99 points at 13,245.45, the Nasdaq shed 8.49 points at 3,013.81. The S&P 500 index rose 0.64 of a point to 1,428.48.

Bernanke repeated his belief that if the scheduled tax hikes and spending cuts do take effect in January, they will have a significantly adverse effect on the economy, regardless of what the Fed might do.

And he warned the Fed cannot blunt the full impact of the fiscal cliff, saying “it’s just too big.”

The Fed also said it would keep its key rate at 0.25 of a per cent as long as the jobless rate stays above 6.5 per cent. The Fed had previously committed to keeping the rate unchanged until the end of 2015.

“That is still likely consistent with rates remaining on hold until mid-2015, unless prospects shift materially,” said CIBC World Markets senior economist Peter Buchanan.

The Fed’s latest stimulus program involves spending US$45 billion a month on Treasury securities. It will complement an existing program where the Fed buys mortgage backed securities to the tune of $40 billion a month.

The central bank has launched three rounds of quantitative easing since the financial crisis hit in 2008 and they have been widely credited with strengthening financial markets.

Gold stocks led advancers in Toronto, up about 2.5 per cent as February bullion on the New York Mercantile Exchange gained $12.60 to US$1,722.20 an ounce. Barrick Gold Corp. (TSX:ABX) climbed $1.02 to C$34.56 while Goldcorp Inc. (TSX:G) improved by $1.05 to $37.63.

The tech sector also strengthened, led by Research In Motion Ltd. (TSX:RIM), which gained 72 cents or 5.8 per cent to $13.14.

The gain was on top of a 5.8 per cent gain Tuesday after the BlackBerry maker said it has released the “gold” build of its developer tool kit, which contains all the final elements needed to create apps for the coming BlackBerry 10 operating system.

The metals and mining sector gained almost one per cent while copper prices lost early momentum and the March contract on the Nymex was up three cents at US$3.72 a pound. Turquoise Hill Resources (TSX:TRQ) was up 33 cents at C$7.68, while Lundin Mining (TSX:LUN) rose 17 cents to $5.17.

The consumer staples sector climbed 0.8 per cent while grocer Loblaw Cos. (TSX:L) advanced $1.02 to $41.45.

The TSX was also lifted by a 0.53 per cent gain in financials as Royal Bank (TSX:RY) climbed 40 cents to $59.27.

The energy sector was off 0.25 per cent as the January crude contract was up 98 cents to US$86.77 a barrel after OPEC oil ministers said at their meeting Wednesday that they would stick to current daily output targets of 30 million barrels.

Prices held up despite data that showed an unexpected increase in crude supplies last week, along with a bigger-than-expected jump in gasoline inventories. Crude supplies rose by 800,000 barrels instead of an expected 2.5 million-barrel decline. Gasoline supplies climbed by five million barrels, about twice the amount forecast.

Cenovus Energy Inc. (TSX:CVE) fell 59 cents to C$33.34 after it said this year’s cash flow is now forecast to come in lower than previously anticipated because of lower crude prices, longer than expected maintenance downtime at U.S. refineries and a one-time cash tax expense. Cash flow is expected to be $3.7 billion, missing the range of $3.9 billion to $4.1 billion Cenovus forecast in October.

The telecom sector was the leading decliner with BCE Inc. shares (TSX:BCE) down 66 cents at $42.29 after subsidiary Bell Canada said it plans to make a $750-million payment toward its defined benefit pension plan.

Canadian National Railway Co. (TSX:CNR) shares dipped 44 cents to $89.92 after Bill Gates increased his overall stake in the company to about 12 per cent. Cascade Investment LLC, a company owned by the founder of tech giant Microsoft, has acquired an additional 13,670 CN shares for $1.25 million.

In other corporate developments, Malaysian state-owned energy firm Petronas has completed its $6-billion takeover of Progress Energy Resources Corp. (TSX:PRQ). The deal won Ottawa’s approval on Friday after having initially been rejected as not being of “net benefit” to Canada. Progress’ shares and debentures are expected to be delisted from the Toronto Stock Exchange on Monday.