Stocks rise, hopes for Chinese stimulus compete with fiscal cliff worries

TORONTO – The Toronto stock market closed modestly higher Wednesday amid optimism about the Chinese economy and cautious hopes about the pace of negotiations aimed at heading off a serious U.S. fiscal crisis.

The S&P/TSX composite index was 20.11 points higher to 12,157.29 as the market also found support from major acquisition activity in the real estate sector and significant cost-cutting moves from Canadian Pacific Railway(TSX:CP).

The TSX Venture Exchange was down 8.32 points to 1,184.54.

The Canadian dollar rose 0.16 of a cent to 100.84 cents US.

Traders also looked to possible progress on a deal to avert the so-called U.S. “fiscal cliff” of automatic spending cuts and tax increases at the start of the new year. Without a deal, the U.S. could well fall back into recession and push much of the world down with it.

“That’s what markets are focused on, will the U.S. careen off the fiscal cliff or not?” said John Stephenson, portfolio manager at First Asset Funds Inc. He observed that the laser-like focus on the fiscal issue has resulted in markets, “whether they be oil markets, gas markets, bond markets, equity markets, moving together instead of moving by their fundamentals.”

“(The cliff) is the main story right now and everything else is secondary.”

New York markets were mainly higher after Bloomberg reported that some 40 Republicans have signed a letter calling for exploration of “all options” on taxes and entitlement programs, a signal that some rank-and-file members could be ready to bargain.

House Republicans have so far proposed a 10-year, US$2.2 trillion blueprint that calls for increasing the eligibility age for Medicare and lowering cost-of-living hikes for Social Security benefits.

But the White House has dismissed the GOP plan since it fails to raise the top two tax brackets for upper-income earners — a core promise of President Barack Obama’s election campaign and a central demand in the current talks.

The Dow Jones industrials ran ahead 82.71 points to 13,034.49, the Nasdaq declined 22.99 points to 2,973.7, paced by a 6.4 per cent drop in Apple Inc. shares, while the S&P 500 index was up 2.23 points to 1,409.28.

Markets had started the session off on a positive note on hopes that China’s new leadership will back new measures to stimulate the world’s second-biggest economy.

The catalyst to the optimism had been a Chinese government pledge to maintain policies intended to strengthen the economy and an expression of willingness to “fine tune” them and make them more effective.

There were also reports that the government lifted investment limits for insurance companies and that the new Chinese leadership will remain focused on urbanization, which could ramp up infrastructure spending.

China has been a major prop for a global economy still trying to recover from the financial collapse and subsequent recessions of 2008. Signs of stimulus are welcome because the Chinese government had to take steps to weaken the economy over the last couple of years to deal with higher than acceptable inflation.

A group led by KingSett Capital is proposing a $4.4-billion takeover of Primaris Retail Real Estate Investment Trust (TSX:PMZ.UN), one of Canada’s largest shopping mall operators.

At the same time, industry leader RioCan Real Estate Investment Trust (TSX:REI.UN) has conditionally agreed to buy five regional malls and three other shopping centres currently owned by Primaris. RioCan values that part of the Primaris portfolio at $1.1 billion. Primaris units surged 14.58 per cent to $26.40 while RioCan units rose 34 cents to $27.30.

Canadian Pacific Railway plans to bring down operating costs by cutting about a quarter of its workforce, or 4,500 employees, by 2016. The cuts are part of a plan to increase annual revenue growth between four and seven per cent from 2012 levels as well as reduce its full-year operating ratio, a closely watched measure of how much revenue is required to run the business, to the mid-60s range by 2016. CP shares ran ahead $3.82 or 4.11 per cent to $96.82.

Commodity prices were mixed and the mining sector led advancers, up 1.79 per cent as March copper edged up three cents at US$3.66 a pound on the Chinese reports. The country is the world’s biggest consumer of the metal, viewed as an economic bellwether because it is used in so many industries. Teck Resources (TSX:TCK.B) gained 95 cents to $34.20 while First Quantum Minerals (TSX:FM) climbed 47 cents to $20.85.

The energy sector gained 0.67 per cent with the January crude contract on the New York Mercantile Exchange down 62 cents to US$87.88 a barrel. Canadian Natural Resources (TSX:CNQ) was ahead 35 cents to $27.7.

The gold sector was the leading decliner, down 2.74 per cent while February gold fell $2 to US$1,693.80 an ounce. Iamgold (TSX:IMG) dropped 78 cents to $10.66 and Goldcorp Inc. (TSX:G) was off $1.24 to $36.61.

Traders also took in some weak jobs data. Payroll firm ADP reported that the private sector created 118,000 jobs during November. The U.S. government releases its non-farm payrolls report for November on Friday and economists expect the economy created only about 95,000 jobs. But they agree that job creation was impacted by Superstorm Sandy.

Other data showed increasing expansion in the U.S. service sector.

The Institute for Supply Management says its index of non-manufacturing activity rose to 54.7 from 54.2 in October. Any reading above 50 indicates expansion. A measure of employment fell sharply but still showed companies added workers last month.

In other corporate news, resource giant Freeport-McMoRan Copper & Gold says it is buying oil companies Plains Exploration & Production and McMoRan Exploration for about US$9 billion. The additions of the oil and gas drillers are expected to create a natural resources conglomerate with assets ranging from oil rigs in the Gulf of Mexico to mines in Indonesia and Africa. Freeport shares tumbled 16 per cent to US$32.16 in New York.