December 12, 2007 / 2:17 PM / 11 years ago

Toronto stocks set for Fed-talk rebound

TORONTO, Dec 12 (Reuters) - The Toronto Stock Exchange’s main index was seen bouncing back on Wednesday, recovering from a steep fall the previous day, on hopes that the U.S. Federal Reserve will take more steps to address liquidity shortages.

Also on Wednesday, EnCana Corp (ECA.TO) will be on radars after Canada’s biggest oil and gas producer said it plans to double its 2008 dividend and boost capital expenditure. For details see: [nN12248738]

But any talk of Fed action is expected to dominate market movement.

On Tuesday, the Fed cut interest rates by a modest 25 basis points, disappointing investors expecting a bolder move to defend the world’s biggest economy against a possible recession.

The decision caused the Toronto index, which had punched through the 14,000-mark earlier in the day, to reverse course in the afternoon. The index closed down 216.65 points, or 1.55 percent, and snapped a four-session winning streak.

A Fed source told Reuters that policymakers were considering tools to address funding pressures on financial markets.

Fergal Smith, managing market strategist at Action Economics, said expectations of more Fed intervention will be the key driver in early trading.

“The market yesterday was banking on a more aggressive cut, but was also hoping for a deeper cut in the discount rate to help overcome some of the liquidity issues facing the market,” he said.

The Fed also cut the discount rate — which it charges banks for direct loans — by 25 basis points on Tuesday.

Reports on Wednesday suggested the U.S. central bank could inject new liquidity to auction loans and banks, which have been hit hard in the second half of this year after defaults on U.S. mortgages led to a global credit crunch.

The TSX financials sector, accounting for about 30 percent of the overall index, is off 2.2 percent since June and fell 1.2 percent on Tuesday.

The United States is Canada’s biggest trading partner and U.S. stock futures, which were sharply higher before the opening bell, are a key bellwether for Canadian stocks.

Elsewhere, Canadian Pacific (CP.TO) warned that its adjusted 2007 diluted earnings per share may be below its previous range. For details, see: [nN12292272]

The S&P/TSX composite index .GSPTSE starts the day at 13,723.71.

$1=$1.01 Canadian Reporting by Jonathan Spicer; Editing by Scott Anderson

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