Newspaper article The Canadian Press

Stocks Jump: Solid Economic Data Provides Diversion from Central Bank Concerns

Newspaper article The Canadian Press

Stocks Jump: Solid Economic Data Provides Diversion from Central Bank Concerns

Article excerpt

Stock markets rise amid strong data

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TORONTO - The Toronto stock market closed higher Tuesday as solid U.S. economic data persuaded traders to pick up stocks beaten down by concern over the U.S. Federal Reserve turning off the stimulus taps as well as trouble in China's credit system.

The S&P/TSX composite index jumped 168.56 points to 12,005.42.

The Canadian dollar slipped 0.21 of a cent to 95.16 cents US amid rising U.S. bond yields.

U.S. indexes were also positive with the Dow industrials up 100.75 points at 14,760.31, the Nasdaq rising 27.13 points to 3,347.89 and the S&P 500 index climbing 14.94 points to 1,588.03.

Standard & Poor's/Case-Shiller 20-city home price index showed that U.S. home prices jumped 12.1 per cent in April from a year ago. The index also showed a 2.5 per cent increase in April from March, the biggest month-over-month gain on records dating to 2000.

Also, the U.S. Commerce Department said new home sales rose 2.1 per cent last month compared with April to a seasonally adjusted annual rate of 476,000, the highest level since July 2008.

Other data showed that orders for durable goods increased 3.6 per cent last month, matching April's gain, but it was also much stronger than most economists had expected.

And Americans' confidence in the economy rose to its highest level in more than five years, bolstered by a more optimistic outlook for hiring. The New York-based Conference Board says its U.S. consumer confidence index jumped to 81.4 in June from 74.3 in May.

Markets have sold off partly on worries that the U.S. Federal Reserve is prepared to put the brakes on its program of bond buying. Those US$85 billion of purchases every month have kept long-term rates low and helped many stock markets to rise sharply this year.

Analysts find the reaction to the move puzzling since a Fed exit from the program means economic conditions are improving.

"They said they may taper (bond purchases), and tapering is not a rate hike," said Kevin Headland, director, portfolio advisory group at Manulife Asset Management.

"It's just easing a bit off the gas pedal and that's not bad, it's actually the transitionary handover from the Fed putting the gas in the engine to the consumer and the actual economy running on its own. And that's not a bad thing at all."

Rising bond yields have also spooked markets. Yields spiked, up to 2.6 per cent Tuesday, which is almost a two-year high. The yield on the benchmark 10-year Treasury stood at 2.25 per cent last Wednesday before Fed chairman Ben Bernanke indicated that the Fed could start winding up the bond buying program later this year.

Markets were further rattled after China raised its interbank lending rate -- the interest rate that banks must pay to borrow from each other -- to over 13 per cent as part of an effort to trim off-balance-sheet lending. …

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