January 25, 2008 / 2:01 PM / 10 years ago

Toronto stocks seen rising after inflation slows

TORONTO, Jan 25 (Reuters) - The Toronto Stock Exchange’s main index was seen adding to recent gains on Friday as a slowdown in Canadian inflation increased the likelihood of further interest rate cuts, while gold hit a record high.

The S&P/TSX composite index .GSPTSE logged three-days of gains this week, capped by a rise of 249.87 points, or nearly 2 percent, to 12,907.27 in the previous session.

The index has swung in a 1,000-point range this week as fears over a U.S. recession reached a fever pitch, and investors weighed the effects of further rate cuts.

The Bank of Canada may be more inclined to chop benchmark rates in coming months after the country’s core inflation rate -- a key barometer for decisions on monetary policy -- unexpectedly slowed last month. For details, see: [nN25271211]

“Inflation would be low in Canada because our dollar got so high,” said Douglas Davis, president at Davis-Rea.

He suggested that because the U.S. Federal Reserve earlier this week slashed rates by a hefty 75 basis points just before the Bank of Canada made a 25 basis-point cut, “you can expect a bit of a catch up on rates here in Canada next month.”

The resource-heavy TSX could also be lifted on Friday as spot gold prices touched a record high, topping $920 an ounce in early action after power cuts shut all of South Africa’s mines. For details, see: [nL25750318]

The TSX gold subsector contains two of the world’s biggest producers, Barrick Gold ABX.TO and Goldcorp G.TO, and closely tracks the underlying commodity.

European stocks also rose, brushing off a $7-billion fraud at French bank Societe Generale. Meanwhile U.S. stock futures pointed to a higher start after Microsoft Corp MSFT.O posted strong earnings.

Canada’s benchmark TSX often takes a cue from the larger U.S. stock markets.

The TSX is up 1.3 percent in the last four days, on track for its first weekly advance in three weeks.

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

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