December 10, 2007 / 9:36 PM / 11 years ago

UPDATE 2-Toronto stocks get lift from gold, Fed cut hopes

(Updates with official closing numbers. Adds details, comments, background)

By Wojtek Dabrowski

TORONTO, Dec 10 (Reuters) - The Toronto Stock Exchange’s benchmark index finished higher on Monday as a jump in the price of gold and the expectation of a U.S. interest rate cut drove investors to the market.

The S&P/TSX composite index rose 77.39 points, or 0.56 percent, to close at 13,940.36.

The energy group rose 0.54 percent, while financials added 0.76 percent ahead of an expected cut to U.S. interest rates by the Federal Reserve on Tuesday.

The resources-laden materials sector, buoyed by a 1.7-percent rise in the price of gold, jumped 1.06 percent.

Overall, six of the 10 main subgroups finished the day higher.

Many observers expect the Fed to deliver a rate cut of 25 basis points on Tuesday, with some even calling for double that. Lower interest rates mean a drop in borrowing costs for investors and companies alike and could help firm a U.S. economy shaken by a liquidity crunch tied to the subprime mortgage market.

However, equity markets could see a selloff if rates are left unchanged, given that so many investors are anticipating a reduction.

“If there’s any possibility that they didn’t cut rates, then watch out below — this entire thing could go into a nosedive in a matter of seconds,” said Gavin Graham, chief investment officer at the Guardian Group of Funds.

He added, however, it is unlikely that Fed Chairman Ben Bernanke would take “risks of that nature”.

Financial shares held up well on Monday, including Canadian Imperial Bank of Commerce (CM.TO), which rose C$1.29, or 1.6 percent, to C$80.84. Royal Bank gained 81 Canadian cents, or 1.6 percent, to C$53.07.

“The financial services are all having a rebound from sort of the thrashing that they took,” said John Kinsey, portfolio manager at Caldwell Securities Ltd.

Meanwhile, the price of U.S. gold jumped almost 2 percent, taking with it Toronto-listed gold miners. Barrick Gold (ABX.TO) jumped C$1.02, or 2.6 percent, to C$40.93. ($1=$1.01 Canadian) (Reporting by Wojtek Dabrowski; Editing by Peter Galloway)

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