January 20, 2012 / 1:42 PM / 6 years ago

TSX edges higher on day, up 1.4 percent on week

TORONTO (Reuters) - Canadian stocks ended slightly higher on Friday as financial issues rose on increased optimism about Europe, but had their momentum slowed as signs of weakness in China's factory activity stoked demand worries.

News that Greece was closing in on an initial deal with private bond holders to avert a default by the debt-ravaged nation boosted market sentiment.

"Global investors just want to get the parameters of what the (Greek) private sector involvement is going to be," said Stephen Wood, chief investment strategist for North America at Russell Investments. "That allows the market to handicap contagion implications a bit better."

Despite scant exposure to risky European debt holdings compared with their global counterparts, Canadian financial issues still responded positively as a resolution to Greece's debt woes would have a stabilizing affect on the rest of the euro zone.

Financials climbed 1 percent, with Royal Bank of Canada (RY.TO) ahead 1.4 percent at C$53.85 while Toronto-Dominion Bank (TD.TO) was up 1.2 percent at C$79.15.

"The health of financials in North America is an improving one and the financial market in Europe is questionable," said Wood. "Canadian banks have weathered this in the last four years pretty well."

The Toronto Stock Exchange's S&P/TSX composite index .GSPTSE closed up 16.41 points, or 0.1 percent, at 12,397.10. The TSX gained 1.4 percent for the week and reached its highest level since mid November.

China set the negative tone early after manufacturing data showed a lackluster start to the year by the world's top metals consumer.

Six of the 10 main sectors were lower, with the heavily weighted materials group pulled down by Potash Corp's (POT.TO) nearly 2 percent slide to C$45.24.

First Quantum Minerals FM.TO led declines for base metal miners, falling 5.7 percent to C$22.55 as copper was hurt by profit-taking as Chinese markets closed for the week-long Lunar New Year holiday. <MET/L>

Energy shares were also down as U.S. oil futures fell, with the February crude contract down almost $2 at $98.46 a barrel.

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Canadian Natural Resources (CNQ.TO) was the biggest drag on the sector, sliding 0.9 percent to C$38.98.

South of the border, weaker earnings from tech giant Google and industrial powerhouse General Electric, added to the negative tone. .N

However, positive U.S. housing data that showed sales of previously owned homes rose to an 11-month high in December, added some weight to the belief the troubled sector may be starting to recover.

In Canada, slower growth in gasoline prices and lower vehicle costs helped push down the consumer price index by 0.6 percent in December, Statistics Canada said on Friday.

December inflation slowed to a year-on-year 2.3 percent, down from 2.9 percent in November, making it easier for the Bank of Canada to keep interest rates low or even cut them if the European debt crisis worsens.

Canadian equities have enjoyed a nice run to start the year with the TSX up more than 3 percent as the commodities-heavy index has benefited from improving expectations for Chinese and U.S. growth, and a move towards riskier equity assets.

But analysts remain skeptical that January's rally can be sustained in coming weeks.

"I don't think this thrust that we're seeing in equity markets is going to persist," said Sid Mokhtari, director of institutional equity research at CIBC World Markets. "Our numbers suggest that we would have a softer behavior in the next month."

Editing by Rob Wilson

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