Toronto stock market inches higher amid Italian uncertainty, solid BMO earnings

TORONTO – The Toronto stock market closed with a slight gain Tuesday as traders coped with heightened uncertainty over whether a new Italian government will follow through on crucial financial reforms to deal with that country’s huge debt.

The S&P/TSX composite index edged up 9.57 points to 12,660.44, led by higher gold stocks as bullion prices surged on worries about Italy and remarks about the future of economic stimulus by Federal Reserve chairman Ben Bernanke.

The TSX Venture Exchange dipped 9.09 points to 1,131.91.

The TSX found some support from the financial sector after Bank of Montreal (TSX:BMO) said Tuesday that its net income slipped to $1.05 billion or $1.53 per share from $1.12 billion or $1.63 per share a year earlier. On an adjusted basis, earnings were $1.52, beating analyst expectations by four cents and its shares rose 82 cents to $63.75.

The initial results of the Italian election showed voters were fed up with the austerity measures enacted by the previous technocratic government led by Mario Monti, who was brought in to deal with the country’s huge debt levels.

But voter anger against the Monti government was channelled through several outlets. The centre-left coalition led by Pier Luigi Bersani appears to have won a narrow victory in the lower house of parliament while the Senate looks split with no party in control.

“We expect risky assets to remain under pressure until the picture in Italy becomes clearer,” said a commentary from Barclays Research.

The Canadian dollar closed higher after six days of losses that brought the loonie to its lowest levels since late last June. The currency was up 0.12 of a cent at 97.43 cents US.

U.S. indexes were higher amid a strong earnings report from Home Depot and positive news from the housing sector.

The Dow Jones industrials jumped 115.96 to 13,900.13, clawing back more than half of Monday’s tumble.

The Nasdaq composite index advanced 13.4 points to 3,129.65 and the S&P 500 index climbed 9.09 points to 1,496.94.

Home Depot’s fiscal fourth-quarter net income surged 32 per cent to $1.02 billion, or 68 cents per share. Analysts polled by FactSet expected 64 cents per share and its shares ran ahead 5.69 per cent to US$67.56.

Meanwhile, the Standard & Poor’s/Case-Shiller 20-city home price index showed that American home prices rose 6.8 per cent in December compared with the same month a year ago. That’s up from a 5.5 per cent annual gain in November.

Other data showed that U.S. new-home sales jumped nearly 16 per cent in January from the previous month to the highest level since July 2008.

Italy’s FTSE MIB index was the worst-performing index in Europe, closing trading 4.89 per cent lower, having earlier been nearly five per cent down at one point Tuesday.

The interest rate on the country’s benchmark 10-year bond — an important gauge of investor sentiment — rose by 0.38 percentage points to 4.83 per cent.

Traders have good reason to be nervous about how Italy deals with its finances. Though its budget deficit is fairly small compared with other euro countries at three per cent of annual gross domestic product, its overall debt stands at a huge €2 trillion.

Last July, concerns over the country’s ability to pay down its debt and the stability of the wider eurozone sent the interest rate on its 10-year bonds to 6.36 per cent.

“Basically, Italy is going to struggle here,” said John Johnston, chief strategist at Davis Rea Ltd.

“Italy’s ability to service its debt long term is incredibly, badly impaired by its lack of growth and the lack of growth needs reforms and the kind of political environment in Italy right now is not constructive for reforms.”

New York also found support from comments by Federal Reserve chairman Ben Bernanke which signalled that the Fed’s efforts to keep borrowing costs low will continue.

Bernanke acknowledged that the Fed’s aggressive program to buy US$85 billion a month in bonds to keep rates low could eventually ignite inflation or unsettle investors. Several Fed policy-makers said at their most recent meeting that the Fed might have to scale back its bond purchases because of those risks.

But Bernanke said the risks remained contained for now.

The TSX gold sector led advancers, up about 1.35 per cent as Bernanke’s remarks and the uncertainty over Italy pushed the April bullion contract $28.90 higher to US$1,615.50 an ounce. Goldcorp Inc. (TSX:G) rose 80 cents to C$34.44.

The metals and mining sector was 0.56 per cent higher while March copper was up two cents at US$3.57 a pound. First Quantum Minerals (TSX:FM) was ahead 46 cents to C$18.87.

The energy sector fell 0.57 per cent as the April crude contract on the New York Mercantile Exchange lost 48 cents to US$92.37 a barrel, its lowest close this year. Suncor Energy (TSX:SU) fell 45 cents to C$30.92.

The information technology sector led decliners, down almost one per cent as CGI Group (TSX:GIB.A) fell 69 cents to $26.35 while Wi-Lan Inc. (TSX:WIN) dropped 12 cents to $4.30.

In other earnings news, Maple Leaf Foods Inc. (TSX: MFI) said net income attributable to common shareholders was $54.6 million or 38 cents per diluted share in the three months ended Dec. 31, up from $8.4 million or six cents per diluted share in the same 2011 quarter. Revenue fell slightly to $1.2 billion from $1.24 billion and its shares were up 58 cents to $13.76.