Stocks rally on gold, Fed rate-cut hopes

Mon Dec 10, 2007 5:06pm EST
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By Wojtek Dabrowski

TORONTO (Reuters) - The Toronto Stock Exchange's benchmark index finished higher on Monday as a jump in the price of gold and the expectation of a U.S. interest rate cut pushed investors to the market.

The S&P/TSX composite index rose 77.39 points, or 0.56 percent, to close at 13,940.36.

The energy group rose 0.54 percent, while financials added 0.76 percent ahead of an expected cut to U.S. interest rates by the Federal Reserve on Tuesday.

The resources-laden materials sector, buoyed by a 1.7-percent rise in the price of gold, jumped 1.06 percent.

Overall, six of the 10 main subgroups finished the day higher.

Many observers expect the Fed to deliver a rate cut of 25 basis points on Tuesday, with some even calling for double that. Lower interest rates mean a drop in borrowing costs for investors and companies alike and could help firm a U.S. economy shaken by a liquidity crunch tied to the subprime mortgage market.

However, equity markets could see a selloff if rates are left unchanged, given that so many investors are anticipating a reduction.

"If there's any possibility that they didn't cut rates, then watch out below -- this entire thing could go into a nosedive in a matter of seconds," said Gavin Graham, chief investment officer at the Guardian Group of Funds.   Continued...