July 17, 2012 / 12:42 PM / in 5 years

TSX rallies on oil; Bernanke cools stimulus hopes

People walk past an electronic board displaying the midday TSX index in Toronto February 16, 2011.Mark Blinch

TORONTO (Reuters) - Canada's main stock index hit a one-week high on Tuesday, rising with energy shares on fresh tensions in the Middle East, but gains were limited after Federal Reserve Chairman Ben Bernanke dampened expectations of further monetary stimulus.

Financial markets had hoped for signs the Fed was moving closer to a third round of bond purchases, also known as quantitative easing, or QE3. Bernanke repeated the Fed's pledge to act if needed, even while offering no new clues on when or how the central bank might offer extra support to the U.S. economy.

Still, the market remained hopeful of future Fed action.

"I would not be surprised to see further stimulus and easing in the next couple months out of the U.S. and that's what the market is telling us today," said Barry Schwartz, vice president and portfolio manager at Baskin Financial Services.

"If there's stimulus and easing, you want to own commodities."

Canada's resource-heavy index fell after Bernanke's comments in his semiannual testimony to Congress, but rebounded as U.S. crude bounced back amid rising tensions involving the West's dispute with Iran over Tehran's nuclear program. <O/R>

"(U.S.) oil at $85 to $95 (a barrel) is Goldilocks - it's too good to be true," said Schwartz. "It's a nice price for the economy where you don't have worries about gasoline prices getting too high or inflation, and it's a good price for the oil producers to make a lot of money."

Canada's influential oil and gas patch led the broader index's gains, climbing 1.3 percent. Canadian Natural Resources (CNQ.TO) jumped 3.2 percent at C$27.31, Encana Corp (ECA.TO) also rose 3 percent to C$20.63, and Suncor Energy (SU.TO) was up 0.9 at C$29.99.

On the downside, Bonterra Energy (BNE.TO) slumped 2.6 percent to C$42.93 and Baytex Energy (BTE.TO) dipped 0.3 percent to C$42.05 after a price downgrade by the Canadian Imperial Bank of Commerce (CM.TO).

The Toronto Stock Exchange's S&P/TSX composite index .GSPTSE finished up 50.01 points, or 0.4 percent, at 11,571.19. At one point it touched 11,572.21, its highest level since July 10.

The powerhouse materials sector, which includes miners, led the declines, slipping 0.4 percent as gold prices retreated after Bernanke's remarks. <GOL/><MET/L>

Losses were led by gold miners Barrick Gold (ABX.TO), down 0.8 percent to C$35.08, Kinross Gold (K.TO), off 3.8 percent at C$8.13, and Eldorado Gold (ELD.TO), which sagged 3.2 percent to C$10.49.

AuRico Gold AUQ.TO plunged more than 13 percent to C$6.66 a day after the company cut its production forecast. The gold miner also announced on Tuesday that its chief executive, René Marion, has resigned for health reasons.

Shares of First Quantum Minerals Ltd (FM.TO) fell 1.9 percent to C$16.64 after it said it has suspended operations at its Guelb Moghrein copper mine in the North African country of Mauritania due to a strike by some of its unionized workers.

"It looks like the oils and materials stocks are bottoming," said Paul Hand, managing director at RBC Capital Markets.

In other company news, Héroux-Devtek Inc (HRX.TO) shares soared 32.7 percent to C$10.42 after it sold its aerostructure and industrial products business to Precision Castparts Corp PCP.N for about $295 million as it looks to focus on its landing gear business.

($1=$1.02 Canadian)

Editing by Leslie Adler and Dan Grebler

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