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TORONTO (Reuters) - Canada's main stock index ended higher on Tuesday as investors largely shrugged off a partial shutdown of the U.S. government, buying into banks, insurers and energy companies while many of the index's biggest mining stocks fell.
Some of the world's biggest gold miners slumped in line with a sharp fall in the price of bullion despite the deflationary risk of the U.S. government reducing its activities and a looming battle over raising Washington's borrowing limits.
Investors are getting wise to Washington politics and do not expect the shutdown to last too long, said Keith Richards, portfolio manager at ValueTrend Wealth Management in Barrie, Ontario.
And if the shutdown were prolonged, it might encourage the U.S. Federal Reserve to maintain its stimulus program for a longer period, which would also boost stocks, he said.
"If there is a longer shutdown it would slow the economy and therefore reduce the (Fed) taper talk that's been the prevalent fear out there," Richards said, adding that a looming fight over raising Washington's borrowing authority was much more dangerous.
The TSX index ended up 60.25 points, or 0.47 percent, at 12,847.44, its biggest one-day gain since September 18. It had opened in the red after hitting a two-week low on Monday.
The materials sector was the only one of ten major groupings to slip.
Goldcorp Inc (G.TO) and Barrick Gold Corp (ABX.TO) were the two heaviest drags on the Toronto Stock Exchange's S&P/TSX composite index .GSPTSE, with Goldcorp off 2.7 percent at C$26.06 and Barrick falling 3 percent to C$18.60.
The price of gold fell below $1,300 per ounce, to its lowest since early August, in heavy volume early on Tuesday as investors saw the U.S. standoff as likely temporary and sold safe-haven bullion. <GOL/>
But the partial U.S. government shutdown and looming debt-ceiling battle "are all good fodder for gold, so I think it is a purchase opportunity for gold and gold miners," said John Ing, president of Maison Placements Canada.
Valeant Pharmaceuticals International Inc (VRX.TO) had the single biggest positive impact on the index, up 4 percent at C$111.66.
The index's heavyweight energy sector gained despite a drop in oil prices. In the group, Talisman Energy Inc TLM.TO jumped 4.9 percent to C$12.40 and Suncor Energy (SU.TO) added 0.9 percent to C$37.15.
The financial sector was also higher, with Royal Bank of Canada (RY.TO) gaining 1.1 percent to C$66.71. Bank of Nova Scotia (BNS.TO) added 0.8 percent to C$59.45 and insurer Manulife Financial Corp (MFC.TO) gained 1.4 percent to C$17.28.
Maison's Ing said that investors will get increasingly nervous if the shutdown drags on and as an October 17 deadline to increase the $16.7 trillion U.S. borrowing limit approaches without agreement in Congress.
"In both the technicals and fundamentals there's a huge degree of complacency" in the stock market, Ing said. "Just as a moth flies around a flame and hasn't been burned yet, that doesn't mean it isn't going to get burned."
Editing by Jeffrey Hodgson and Nick Zieminski