TORONTO (Reuters) - Toronto's main stock index finished more than 1 percent higher on Tuesday as optimism ahead of Canada's budget boosted financial shares and overcame a drag from commodities groups.
The sector rose 3.88 percent, partly on hopes that the federal budget, released after market close, would contain measures to ensure stability in the financial system.
"Keeping the economy from going into severe recession is going to limit their loan losses. If the recession is milder and shallower as a result of this fiscal stimulus then obviously the banks aren't going to lose as much money on credit card loans or commercial loans or personal lines of credit," said Tim Burt, president and chief investment officer at Cardinal Capital Management Inc in Winnipeg, Manitoba.
In the budget document, the government said it would seek to bolster the financial system and improve access to financing by committing C$50 billion more to a program that buys insured mortgages. It will also give itself the authority to inject capital into banks and financial firms that need support.
The government, which had leaked an unprecedented amount of detail about the package in the days leading up to Tuesday's release, now awaits reaction from the main opposition Liberals. The budget is expected to win opposition support, which would ensure the survival of the minority Conservative government.
"The big issue is not so much the budget itself, it's more is it good enough to allow the government to survive here," said Levente Mady, a broker at MF Global Canada, in Vancouver.
The S&P/TSX composite index .GSPTSE closed up 1.2 percent, or 103.12 points, at 8,759.63. The blue chip S&P/TSX 60 index .TSE60 closed 1.42 percent higher.
Eight of the TSX's 10 main groups rose, with the exception of the heavily weighted materials and energy sectors.
The resource sectors, which account for about 40 percent of the index's weighting, fell on weakness in underlying commodity prices. The price of oil fell 9 percent to under $42 a barrel, while gold held below $900 an ounce as investors took profits after the last session's gains.
The energy group fell 0.75 percent and materials dropped 1.54 percent.
"Commodities are weaker on continued concern that we're no where near the bottom of the economic trough, and we're a commodity-biased equity market. We trade with commodities," said Paul Taylor, chief investment officer at BMO Harris Investment Management.
Among the key decliners were Barrick Gold, down 2 percent at C$45.57, while Canadian Natural Resources (CNQ.TO) fell 2.21 percent at C$44.28. Suncor Energy (SU.TO) slid 1.6 percent to C$23.90. Kinross Gold (K.TO) fell 2.4 percent to C$20.96.
U.S. stocks were lifted by a rare bit of encouraging news on the earnings front from companies, including American Express, which offset signs that consumers remain glum.
The Dow Jones industrial average rose 58.70 points, or 0.72 percent, to 8,174.73. The Nasdaq advanced 15.44 points, or 1.04 percent to 1,504.90.
Reporting by Ka Yan Ng and Jennifer Kwan; editing by Rob Wilson