Strong U.S. housing data pushes stocks higher Wednesday amid Italian uncertainty

TORONTO – Stock markets closed higher Wednesday as investors put aside concerns about an Italian election without a clear winner in favour of further indications of a strengthening U.S. housing sector and that the U.S. Federal Reserve will be keeping its economic stimulus program alive for awhile yet.

The S&P/TSX composite index was up 71.95 points at 12,732.39, held back by falling gold stocks, while the TSX Venture Exchange slipped 0.79 of a point to 1,131.12.

The Canadian dollar gained 0.32 of a cent to 97.75 cents US.

The Dow Jones industrials surged 175.24 points to 14,075.37, its highest close this year.

The National Association of Realtors said a measure of the number of Americans who signed contracts to buy homes rose in January from December to the highest level in more than two and a half years. Its seasonally adjusted index for pending home sales rose 4.5 per cent last month to 105.9.

Sales of previously occupied homes ticked up in January after rising to their highest level in five years in 2012.

The Nasdaq composite index was ahead 32.61 points at 3,162.26 and the S&P 500 index was up 19.05 points at 1,515.99.

Markets also took in a second day of Congressional testimony from U.S. Federal Reserve chairman Ben Bernanke, where he sought to reassure Congress members that the central bank has a handle on the risks of the central bank’s aggressive program to buy US$85 billion a month in Treasurys and mortgage bonds.

As he did on Tuesday, Bernanke expressed confidence that the central bank’s low-rate policies currently pose little risk of causing runaway inflation or a stock market bubble.

Traders also looked to Italy following an inconclusive election that saw voters reject parties supporting austerity to deal with the country’s huge debt levels.

The centre-left alliance led by Pier Luigi Bersani narrowly won the lower house, but failed to gain control of the upper house. It is not clear what kind of coalition can be formed to give the country a government that can pass legislation and carry on with the financial reform that markets have demanded.

“I’m surprised that the market is not selling off more because this is not Greece, it’s the third largest economy in Europe,” said Kash Pashootan, vice-president and portfolio manager at Raymond James in Ottawa.

“And this uncertainty in terms of the potential of even seeing a hung government will have significant impact on (whether) bank lending freezes up because they’re not sure which way the government will go. That will trickle down to small businesses, the backbone of the Italian economy.”

The turmoil over the election results is already making itself felt in borrowing costs for Italy.

The country sold €4 billion in 10-year bonds at a yield of 4.83 per cent, way up from 4.17 per cent last month.

Higher rates mean more skepticism about an indebted country’s ability to pay.

Italy’s main stock index clawed back some ground after losing more than four per cent on Tuesday. The FTSE MIB index was up about one per cent.

All TSX sectors were positive save for the gold component.

Railway stocks help push the industrial sector up 1.23 per cent with Canadian Pacific Railway (TSX:CP) ahead $3.85 to $124.58.

The telecom sector was up 1.22 per cent as Telus Corp. (TSX:T) rose $1.40 to $70.62.

The information technology sector was ahead 0.9 per cent as CGI Group (TSX:GIB.A) climbed 54 cents to $26.89 and BlackBerry (TSX:BB) edged up 12 cents to $13.58.

The energy sector was ahead almost one per cent as the April crude contract on the New York Mercantile Exchange gained 13 cents to US$92.76 a barrel. Prices moved to positive territory after data for the week ending Feb. 22 showed a rise in inventories of 1.1 million barrels, much less than the build of 2.6 million barrels that analysts expected.

Canadian Natural Resources (TSX:CNQ) gained 55 cents to C$30.98.

The base metals sector was also ahead close to one per cent while May copper was down two cents at US$3.57 a pound. Thompson Creek Metals (TSX:TCM) declined gained 30 cents to C$3.67 .

Sherritt International (TSX:S) lost 35 cents to $5.35 as the miner reported Wednesday that it had a $17.3-million net loss, or six cents per share, in the fourth quarter. After adjusting to remove certain items, Sherritt had $6.2 million of net earnings or three cents per share, double what analysts expected.

Sherritt also announced Tuesday it has increased its quarterly dividend to 4.3 cents per share, up from 3.8 cents per share.

The gold sector was the biggest weight, down about 2.2 per cent as April gold on the Nymex fell $19.80 to US$1,595.70 an ounce. Goldcorp Inc. (TSX:G) fell 54 cents to C$33.90 while Iamgold (TSX:IMG) dropped 38 cents to $7.27.

In earnings news, traders also focused on news from the retail sector.

Sears Canada Inc. (TSX:SCC) reported it had $39.9 million of net earnings in the fourth quarter or 39 cents per share, little changed from the year-earlier period. However, revenue and same-store sales declined during the important holiday shopping period as total revenue fell to just under $1.3 billion, down about $60 million from a year earlier and its shares gave back 45 cents to a fresh 52-week low of $8.85.

And in the U.S., Target’s fiscal fourth-quarter net income dipped two per cent to US$961 million, or $1.47 per share as it dealt with intense competition during the crucial holiday season. But its adjusted results of $1.65 a share beat analysts’ estimates of $1.47 a share and it forecast first-quarter earnings above Wall Street’s view. Its shares dropped 93 cents to $63.12.

Note to readers: This is a corrected story. An earlier version misidentified the vice-president and portfolio manager at Raymond James.