TSX ends at 18-month high close as financials rise

TORONTO (Reuters) - Canada's benchmark stock index climbed to its highest close in 18 months on Tuesday as Bank of Montreal BMO.TO led financial shares higher on a strong earnings report, adding momentum to a month-long sector rally sparked by higher bond yields.

A man walks past an old Toronto Stock Exchange (TSX) sign in Toronto, June 23, 2014. REUTERS/Mark Blinch

Bank of Montreal rose 2.8 percent to C$92.06. The country’s fourth-largest lender reported quarterly earnings well ahead of market expectations, benefiting from strong performances at its capital markets and U.S. personal and commercial businesses.

“Banks and insurance companies have reported solid numbers and are riding the tailwind of a move higher in yields,” said Matt Skipp, president of SW8 Asset Management.

Bond yields have risen since early November, reducing the value of insurance companies’ liabilities and increase net interest margins of banks.

The overall financials group gained 0.7 percent, while the Toronto Stock Exchange's S&P/TSX composite index .GSPTSE closed up 30.63 points, or 0.2 percent, at 15,125.80, its highest close since June 3, 2015.

The index has rallied 16 percent this year.

“Canada is doing well because of strength in financials, strength in energy, strength in materials and all things cyclical,” Skipp said.

Cyclical stocks benefit most from an upturn in economic growth. Investors have been betting that U.S. President-elect Donald Trump will deliver significant economic stimulus.

“If you believe that Trump and China can inflate the global economy and then throw in optimism over future oil prices, Canada becomes a global proxy for playing this trade,” Skipp said.

Consumer discretionary stocks rose 0.5 percent, with Magna International Inc MG.TO climbing 1.9 percent to C$57.59.

But seven of the index’s 10 main groups ended lower, with energy dipping 0.2 percent as oil fell for the first session since the Organization of the Petroleum Exporting Countries agreed to cut output last week. [O/R]

U.S. crude oil futures CLc1 settled 86 cents lower at $50.93 a barrel.

Consumer staples fell 0.5 percent, while the materials group, which includes precious and base metals miners and fertilizer companies, lost 0.4 percent.

Barrick Gold Corp ABX.TO fell 1.4 percent to C$20.55, while diversified miner Teck Resources Ltd TECKb.TO was down 1.9 percent at C$33.81.

Copper prices CMCU3 declined 1.1 percent to $5,884 a tonne as investors cashed in gains after the previous session's rally on concerns that a surge in base metals prices over the last month had left markets overstretched. [MET/L]

Gold hovered near 10-month lows as the market braced for an increase in U.S. interest rates this month and anticipated more monetary tightening next year. [GOL/]

Additional reporting by Alastair Sharp; Editing by Lisa Von Ahn and Richard Chang