Newspaper article The Canadian Press

TSX Advances as U.S. Federal Reserve Commits to Further Stimulus Measures

Newspaper article The Canadian Press

TSX Advances as U.S. Federal Reserve Commits to Further Stimulus Measures

Article excerpt

TSX rises as Fed moves with further stimulus

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TORONTO - The Toronto stock market closed higher after the U.S. Federal Reserve delivered on expectations for more help keeping the fragile economic recovery going.

The S&P/TSX composite index jumped 127.54 points to 12,360.16 after the U.S. Federal Reserve said it will spend $40 billion a month on a new round of bond purchases to boost the weak economy, and has not set an end date.

The money will be spent on mortgage backed securities to keep interest rates low, encourage lending and support the slow recovery of the housing sector.

The bank will also continue to buy long bonds under its so-called twist program, leaving them buying a total of US$85 billion per month for the balance of the year under the two programs.

The Fed also says it will keep buying more bonds until the job market shows substantial improvement.

That could take awhile as the Fed also has lowered its outlook for growth this year, saying growth will be no stronger than two per cent this year, down from a 2.4 per cent forecast in June.

However, it also expects growth to accelerate next year as much as three per cent, up from June's forecast of as much as 2.8 per cent. For 2014, the Fed projected growth between three and 3.8 per cent.

"The question is, how much of an effect it's eventually going to have but right now everybody is buying it," said John Johnston, chief strategist at Davis Rea Ltd.

"It's not going to have a huge impact on the economy but it will certainly have a big impact on the markets."

The TSX Venture Exchange climbed 20.25 points to 1,302.89.

New York markets shot higher to multi-year highs with the Dow Jones industrials up 206.51 points to 13,539.86.

The Nasdaq composite index jumped 41.52 points to 3,155.83, and the S&P 500 index was 23.43 points higher to 1,459.99.

The Canadian dollar gained 0.87 of a cent to a fresh 13-month high of 103.27 cents US in the wake of the Fed announcement.

The stimulus program involves quantitative easing, which sees the central bank print more money to fund the bond purchases, which in turn weakens the currency.

The loonie has surged in value against the U.S. dollar since last week, up 2.35 cents since last Wednesday, after European Central Bank president Mario Draghi announced the ECB would buy government bonds to hold borrowing costs down the most vulnerable eurozone members. And the greenback further weakened over the last week as speculation grew the Fed was prepared to launch a third round of stimulus, particularly after August job creation figures disappointed even modest expectations.

The Fed left interest rates near zero and said rates wouldn't budge until mid-2015 at the earliest.

In two previous bond-buying programs, the Fed bought more than US$2 trillion of Treasurys and mortgage-backed securities after the 2008 financial crisis. …

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