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TSX rallies by most in a decade as investors cheer economic stimulus

TORONTO (Reuters) - Canada’s main stock market notched on Friday its biggest gain since October 2008, as the Bank of Canada slashed interest rates to ease the economic impact of the coronavirus outbreak, while the Canadian dollar rebounded after hitting a four-year low.

FILE PHOTO: The Art Deco facade of the original Toronto Stock Exchange building is seen on Bay Street in Toronto, Ontario, Canada, January 23, 2019. REUTERS/Chris Helgren -/File Photo

The Bank of Canada unexpectedly cut its overnight rate by 50 basis points to 0.75%, its second half-point cut in nine days, and the government said it would offer C$10 billion in credit support to businesses.

Hopes of coordinated stimulus from world governments boosted stocks globally after several sessions of sustained, heavy losses on expectations of a global slowdown that could be prolonged.

U.S. President Donald Trump declared a national emergency over the quickly spreading virus, opening the door to more federal aid to combat the disease.

The Toronto Stock Exchange Composite Index closed up 9.7% at 13,716.33, recovering some ground after a record decline on Thursday. For the week, the index was down 15.2%, its biggest drop since October 2008.

Nine of the TSX’s 10 main groups were higher, led by a near 15% gain for the heavily-weighted financial services sector, while energy was up 10.6%.

The price of oil, one of Canada’s major exports, had its biggest weekly slide since the 2008 financial crisis despite settling 0.7% higher on Friday, as the coronavirus outbreak threatened demand and crude producers promised more supply.

Despite prospects for stimulus, economists see potential for Canada’s economy to slip into recession.

“We’re penciling in two negative quarters in Q2 and Q3 at this point,” said Nathan Janzen, a senior economist at Royal Bank of Canada “Negatives from the virus and the oil price shock are too much to keep growth positive.”

Money markets expect the Bank of Canada to ease by an additional 25 basis points at its next scheduled rate announcement on April 15.

The Canadian dollar was trading 0.6% higher at 1.3840 to the greenback, or 72.25 U.S. cents, having touched its weakest intraday level since February 2016 at 1.3996.

Canadian government bond yields rose across a steeper yield curve, with the 10-year yield up 25.3 basis points at 0.846%. On Monday, the 10-year yield hit a record low at 0.233%.

Reporting by Fergal Smith; Editing by Paul Simao, Nick Zieminski and Diane Craft

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