Stock markets rise, buyers encouraged by Fed half-point rate cut

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(The Canadian Press)

By By Malcolm Morrison, The Canadian Press

TORONTO - Relief over Tuesday's sizable interest rate cut by the U.S. Federal Reserve sent stock markets higher Wednesday.

Toronto's S&P/TSX composite index was held back by lower oil stocks even as crude prices headed higher but was still up 24.36 points at midmorning to 14,029.76.

The Canadian benchmark index had charged ahead 195.54 points Tuesday in the wake of the Fed's decision to chop its key funds rate by half a percentage point.

The Canadian dollar eased back after the U.S. rate cut had propelled the currency up 1.36 cents Tuesday to levels last seen in mid-January 1977.

The loonie moved down 0.18 of a cent to 98.46 cents US after Statistics Canada said lower gasoline prices helped cool Canada's annual inflation rate to 1.7 per cent in August, down from 2.2 per cent the previous month. However, core inflation, which excludes volatile items such as energy and food, came in at 2.2 per cent, higher than the Bank of Canada's two per cent target.

The TSX Venture Exchange was 26.50 points higher to 2,792.06.

On Wall Street, the Dow Jones industrial average gained 87.71 points to 13,827.1 after surging 336 points Tuesday after the Fed slashed the federal funds rate to 4.75 per cent from 5.25 per cent because of signs that credit market problems could hurt the overall economy.

The Nasdaq composite index rose 19.13 points to 2,670.79 and the S&P 500 added 12.72 to 1,532.5.

The U.S. Labour Department reported its consumer price index dipped 0.1 per cent last month on lower energy prices, slightly better than the flat reading that had been expected. Core prices rose by 0.2 per cent. It was the first decline in headline consumer prices since last October.

On the housing front, the U.S. Commerce Department said construction of new homes fell 2.6 per cent in August to the slowest pace in 12 years.

Morgan Stanley missed Wall Street expectations on earnings and revenue. The second-largest U.S. investment bank reported third-quarter profit fell 17 per cent to US$1.54 billion amid global credit disorder that cut into stock trading, corporate lending and investment results. Investment banking fees helped revenue rise 13 per cent to US$7.96 billion and Morgan Stanley stock edged up 23 cents to US$68.74.

On the TSX, the energy sector was down 1.5 per cent as the rate cut helped send the October crude contract in New York up 69 cents to US$82.20 a barrel as investors believe the Fed move will encourage economic growth and energy consumption.

EnCana Corp. (TSX: PCA.TO) declined 66 cents to $64.15 and UTS Energy (TSX: UTS.TO) fell 37 cents to $5.82.

Suncor Energy dropped $3.70 to $97.35 after CIBC World Markets downgraded the stock to perform from outperform.

Bow Valley Energy Ltd. (TSX: BVX.TO) ran down 24 cents to $5.75 after it said a $40.5-million investment in commercial paper, about 57 per cent of its cash holdings, had matured and not rolled over.

Nova Chemicals Corp. (TSX: NCX.TO), a major Canadian-American commodity chemical producer, acquired exclusive rights to styrene output from a Sterling Chemicals plant in Texas. Nova stock ticked $1.28 higher to $39.83.

The metals and mines sector was the strongest sector in Toronto, up by 2.75 per cent. Teck Cominco Ltd. (TSX: TCK-B.TO) moved up $2.08 to $47.54.

The financial sector was up 0.55 per cent with Royal Bank (TSX: RY.TO) ahead 53 cents to $54.26.

Asian and European stock markets rallied, reacting to Tuesday's Fed move.

London's FTSE 100 index rose 185.5 points to 6,468.8. Frankfurt's DAX 30 was up 165.29 to 7,740.5 and the Paris CAC 40 climbed 165.8 to 5,715.5.

Japan's benchmark Nikkei 225 index soared 579.74 points, or 3.7 per cent, to close at 16,381.54, its biggest gain in more than five years. Hong Kong's Hang Seng index jumped 977.79 points, four per cent, to 25,554.64.

Shares in India hit an all-time high as the Mumbai stock market's 30-share Sensex surged 654 points, or 4.2 per cent, to 16,323.