December 29, 2011 / 1:32 PM / 6 years ago

TSX rallies on U.S. economic hopes

TORONTO (Reuters) - Canadian stocks closed 1 percent higher on Thursday as material and financial shares were boosted by U.S. housing data that allowed investors to focus on the prospect of U.S. economic recovery instead of Europe’s persisting debt crisis.

Resource issues rebounded from Wednesday’s sharp selloff, supported by figures showing pending sales of existing U.S. homes surged to a 1-1/2-year high in November, another signal that the world’s largest economy is emerging from its doldrums.

“The good news is that the (U.S.) economy is not collapsing,” said Paul Hand, managing director at RBC Capital Markets. “There’s a prospect of a bottom in housing prices and in housing starts and maybe the worst is over in terms of that.”

U.S. economic momentum was underscored by other data on Thursday that showed the four-week moving average for jobless claims fell to its lowest point since mid-2008, while regional factory data showed the economy gaining ground as the year ended.

The Toronto Stock Exchange’s S&P/TSX composite index .GSPTSE ended up 113.29 points, or 1 percent, at 11,841.70. It was its biggest jump in a week.

All of the TSX’s 10 main sectors rose, led by the heavyweight materials group, which gained nearly 2 percent on the back of gold mining stocks, which rose as bullion moved sharply off its early-session lows. <GOL/>

Barrick Gold ABX.TO was the biggest mover, jumping 1.8 percent to C$46.07.

The more bullish U.S. data helped overcome a shaky start to the day. The TSX index opened lower after a key Italian debt auction showed 10-year yields still close to levels at which other euro zone governments have been forced to seek bailouts.

Italy sold a healthy 2.5 billion euros of its 10-year benchmark bond, but the yield of 6.98 percent was not far off the record euro high of 7.56 percent, hit a month ago. Still, the sale was generally viewed as a positive by investors as it showed a willingness by European banks to buy longer-term sovereign debt with the nearly 500 billion euros in three-year funds that they borrowed from the European Central Bank last week.

“It’s good news in the sense we appear to have pulled back from the extreme panic of late November/early December, but it’s still not completely satisfying news,” said Carlos Leitao, chief economist at Laurentian Bank Securities.

Canadian financial issues responded positively, rising 0.6 percent. Royal Bank of Canada RY.TO was the biggest gainer, up 1.2 percent to C$51.47.

It may be a sign that the market has already priced in much of the turmoil from the euro zone debt crisis, Hand said.

“Whether or not you’re a believer that the fever has broken, the reality is the market is starting to accept it as a backdrop,” he added. “It’s having a diminishing impact on people’s psyches.”

Oil and gas issues were also up, responding to the possibility of higher oil prices after reports the Iranian government could block the Strait of Hormuz, restricting oil supply from one of the world’s largest oil exporters. <O/R>

Canadian Natural Resources CNQ.TO was the sector’s biggest gainer, rising 1.7 percent to C$37.48.

Editing by Peter Galloway

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