September 5, 2012 / 1:47 PM / in 5 years

TSX ends higher as hopes for Europe boost banks

A Toronto Stock Exchange (TSX) logo is seen in Toronto November 9, 2007. REUTERS/Mark Blinch

TORONTO (Reuters) - Canada’s benchmark stock index ended higher on Wednesday as hopes for aggressive bond-buying action from the European Central Bank boosted banking shares.

Three of the country’s biggest banks jumped more than 1 percent each ahead of a crucial ECB meeting on Thursday when the central bank’s president, Mario Draghi, is expected to announce strong steps to ease pressure on Spanish and Italian borrowing costs.

“There is optimism that Draghi in his speech tomorrow will announce a comprehensive plan where there will be measures to strengthen the Spanish banks and where bond yields will be bought at a certain level without quantifying them,” said Michael Simpson, a senior portfolio manager at Sentry Select Capital Corp.

Simpson said Canadian bank stocks would be immediate beneficiaries of any strengthening of the European banking system, while improved growth prospects for the region would ultimately also lift resource stocks.

Canadian mining and energy stocks notched smaller gains, led by fertilizer company Potash Corp’s (POT.TO) 1.8 percent rise.

Suncor Energy Inc (SU.TO), the country’s largest energy company, gained 0.7 percent to C$31.35 after it said on Tuesday that output at its oil sands operations increased in August compared to the previous month.

The Toronto Stock Exchange’s S&P/TSX composite index .GSPTSE closed up 48.44 points, or 0.41 percent, at 11,990.14.

The index gain reversed a slip since mid-August, when the benchmark index tested highs near 12,200.

Royal Bank of Canada (RY.TO) gained 1.4 percent to C$55.63, Toronto Dominion Bank (TD.TO) rose 1.2 percent to C$81.16 and Canadian Imperial Bank of Commerce (CM.TO) closed up 1.2 percent at C$77.11.

The trio were among a string of major Canadian banks which surprised last week with stronger profits and increased dividends as consumers kept borrowing.

“The reporting validated that things aren’t quite as bad on the consumer side as perhaps some people had feared,” said Paul Hand, managing director at RBC Capital Markets. “And the dividend increases were a pretty big vote of confidence.”

On the negative side, AuRico Gold Inc AUQ.TO slumped 20.4 percent to C$5.49 after the miner cut its full-year production forecast for the second time in as many months.

“That’s the nature of the junior resource stocks - you don’t miss your production or you will be punished by the market,” Sentry’s Simpson said.

Shares in Rona Inc RON.TO slipped 2.4 percent to C$12.51 as investors saw chances of a takeover of the Quebec-based home-improvement retailer and distributor fading after the separatist Parti Quebecois won Tuesday’s provincial election in Quebec.

TransAlta Corp (TA.TO) slipped 3.9 percent after the power producer sold shares to help pay for a 125 megawatt dual-fuel power station in Western Australia for $318 million.

Editing by James Dalgleish

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