January 22, 2008 / 12:04 AM / in 10 years

TSX soars 500 points after rate cuts

TORONTO (Reuters) - The Toronto Stock Exchange’s main index surged more than 500 points on Tuesday, ending a five-day plunge, after Canada and the United States cut interest rates to calm worries over the global economic outlook.

<p>A Toronto Stock Exchange (TSX) logo is seen in Toronto November 9, 2007. REUTERS/Mark Blinch</p>

In a broad-based advance led by the materials, energy and financial sectors, the index regained more than two-thirds of Monday’s 604-point loss as investors took advantage of beaten-down prices.

But the index was still at a level not seen in a year after a nosedive sparked by intensifying fears over the prospect of a U.S. recession and what that could mean for global growth.

An emergency interest rate of 75 basis points cut by the U.S. Federal Reserve on Tuesday, closely followed by a cut of 25 basis points from the Bank of Canada, gave the Toronto benchmark the boost it needed to climb out of a five-session rout.

“Definitely the Fed’s emergency rate cut of 75 basis points has proved to be shot in the arm for global markets and investor sentiment,” said Elvis Picardo, investment strategist at Northern Securities Inc., in Vancouver, British Columbia.

“But the markets still are quite choppy, there’s a lot of nervousness out there and I think the only thing one can predict is the volatility will continue for the foreseeable future.”

The S&P/TSX composite index .GSPTSE closed up 508.76 points, or 4.19 percent, at 12,640.89 with all of its 10 sectors on the upside.

The index got big boosts from Fairfax Financial Holdings (FFH.TO), which rose C$10.75, or 3.8 percent, to C$296.40, and from Research In Motion RIM.TO, which was up C$8.78, or 10.4 percent, at C$93.28.

The materials sector gained 8.4 percent, while its gold producers subsector was up 7.5 percent. Barrick Gold (ABX.TO) was up C$4.78, or 10.3 percent, at C$51.25, while Kinross Gold (K.TO) rose C$3.01, or 15.3 percent, to C$22.67.

The energy and financials sectors added 2.8 percent and 3.7 percent respectively. Petro-Canada PCA.TO moved up 75 Canadian cents, or 1.6 percent, to C$46.90, and Bank of Montreal (BMO.TO) rose C$2.24, or 4.4 percent, to C$53.64.

While the market applauded the Fed’s move, how effective it will turn out to be in the long-term remains to be seen, said Adrian Mastracci, portfolio manager and president at KCM Wealth Management Inc., in Vancouver.

“I think we haven’t really addressed the big problem yet, and the big problem is all these multibillion-dollar losses (in the banking industry),” Mastracci said.

The freefall that began last Tuesday knocked 1,566.15 points, or 11.4 percent, off the index. The dive was capped by Monday’s 604-point plunge, the biggest one day drop in more than seven years.

Despite Tuesday’s advance, the index was still below its 2007 starting point and remained in a technical correction at more than 13 percent off its peak.

The index has moved downwards since the beginning of November amid jitters over the prospect of a U.S. recession and massive writedown from banks due to exposure to the faltering subprime mortgage market.

Market volume was 545 million shares worth C$11 billion. Advancers outpaced decliners 1,079 to 644. The blue chip S&P/TSX 60 index .TSE60 closed 32.56 points, or 4.58 percent, higher at 743.07.

In New York, stocks were lower after taking a holiday on Monday, but the decline was cushioned by the interest rate cut.

The Dow Jones industrial average .DJI ended down 128.11 points, or 1.06 percent, at 11,971.19, and the Nasdaq Composite Index .IXIC fell 47.75 points, or 2.04 percent, to 2,292.27.

$1=$1.03 Canadian

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