UPDATE 1-Toronto stocks rebound 2.5 pct after rate cuts

Tue Jan 22, 2008 10:39am EST
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TORONTO Jan 22 (Reuters) - Toronto stocks sharply rebounded on Tuesday after dropping 100 points at the open, as interest rate cuts in both Canada and the United States helped investors shake off steep losses in the previous session.

The Toronto Stock Exchange's S&P/TSX composite index .GSPTSE was up 301 points, or 2.5 percent, at 12,433.44, after dipping as low as 12,011.68 near the start of trading.

The gains were in stark contrast to the index's performance on Monday, when it dropped 4.75 percent as it was sucked into a global equities tailspin amid worries about a possible U.S. recession and its impact on world economies.

But a surprise 75-basis-point interest rate cut by the U.S. Federal Reserve on Tuesday, followed by a 25 basis point cut by the Bank of Canada, provided some comfort to battle-weary investors.

"The Canadian market reacted to the bigger-than-expected (U.S.) interest rate drop," said Sal Masionis, a stockbroker at Brant Securities.

"But we still have a lot of questions out there about all that derivative exposure that still has to come home to roost."

All 10 of the TSX index's main groups rose, with a 5.3 percent boost in the resource-heavy materials group and a 1.5 percent advance in the heavily weighted financial group. Energy shares were up 0.8 percent.

Together, the three groups make up about 75 percent of the overall market's weighting.   Continued...