Rescue leads to stock climb

May 10, 2010 (Baystreet.ca) --

Stock markets were up sharply Monday afternoon as investors breathed a collective sigh of relief after the European Union signaled it would do whatever is necessary to protect the euro currency and deal with a severe government debt crisis.

The S&P/TSX composite index rocketed 255.47 points, or 2.2%, to close at 11,947.90.

However, analysts warned that although the moves are good news, they don't mean the problem that started out as a Greek debt crisis and morphed into wider worries about government default has gone away.

The moves by the European Union also pushed the Canadian dollar and the euro, as well as commodity prices, sharply higher after investors had piled into the perceived safe haven of the U.S. dollar over the last few weeks.

Copper prices also rebounded with the July contract ahead eight cents to $3.23 U.S. a pound. The base metals sector advanced, and Teck Resources bounded ahead $3.06 to $39.40 while Equinox Minerals was up 22 cents at $3.82.

The financial sector was also stronger, after bank stocks fell back last week on fears about how the growing government debt crisis could spark a freeze in credit markets similar to that of the fall of 2008. Royal Bank was ahead $1.14 at $60.06 and TD Bank improved by $1.73 to $73.65.

Railway stocks also made headway following severe losses last week alongside falling commodity prices. Canadian National Railways advanced $2.55 to $60.71 and Canadian Pacific ran ahead $2.73 to $59.18.

The TSX global gold sector was ahead, Centerra Gold added 43 cents to $12.31.

In corporate news, drilling and well-servicing company Ensign Energy Services Inc. saw its first-quarter profit fall by 45% from the same time last year to $40 million or 26 cents per share.

Revenue declined 12% to $352.8 million and its shares gained 20 cents to $13.51.

Paramount Resources Ltd.'s shares were up 72 cents to $17.44 after it agreed to buy the remainder of Redcliffe Exploration Inc. by offering other shareholders a 31% premium above Friday's market price. Redcliffe shares jumped nine cents to 41 cents.

Uranium One Inc. shares were off four cents to $2.50 after the company reported a $21.5-million U.S. net loss in the first quarter. Revenue also fell 17% from the comparable period, operating costs increased and a large currency-related accounting gain was eliminated

In economic news, Canada Mortgage and Housing Corporation said Housing Starts edged up 1.3% in April to a seasonally adjusted rate of 201,700 units from a revised 199,200 units in March.

Economists were expecting housing starts to come in at 205,000.

The Canadian dollar gained 0.36 cents to 97.63 cents U.S.

ON BAYSTREET

All 14 TSX subgroups went up, the metals and mining group most emphatically -- 6.5% -- while global base metals jumped 5.4% and industrials hurtled 3.3% higher.

The TSX Venture Exchange improved 41.41 points to 1,590.76, while the Nasdaq Canada index moved 26.70 points higher to 743.30.

ON WALLSTREET

In New York, stocks rallied Monday after European officials approved a nearly $1 trillion rescue plan to contain the debt crisis in troubled nations and stabilize the euro.

The Dow Jones industrial average zoomed 404.71 points, or 3.9%, to 10,795.79. It was the average's biggest one-day point and percentage gain since March 23, 2009.

The S&P 500 index regained 48.85 points, or 4.4%, to 1,158.36, also its best gain point-wise and percentage-wise since March 23, 2009. The Nasdaq composite index jumped 103.28 points, or 4.8%, to 2,374.67. It was the Nasdaq's best day on a point basis since Oct. 28, 2008, and on a percentage basis since March 23, 2009.

Markets around the globe advanced on the plan as investors breathed a sigh of relief that aggressive action was being taken after months of mounting concern. The euro gained versus the dollar, and the dollar gained against the yen.

Treasury prices slipped, boosting the corresponding yields, as investors pulled money out of the safe-haven investment and put it into riskier assets, such as stocks.

A big selloff last week left all three major indexes in negative territory for the year and the Nasdaq in a correction -- defined as a decline of at least 10% off the recent highs. The Nasdaq's decline was 10.5%. The Dow had fallen 7.4% and the S&P 500 8.5% from the late April highs.

Stocks had been down on worries about debt-plagued Greece weakening other troubled European nations, including Spain and Portugal, and ultimately destabilizing the euro.

But the selling was exacerbated last Thursday after computer trading on more than 300 stocks sparked a massive selloff. The Dow tumbled 998.50 points, the index's biggest loss ever on an intraday basis, before it recovered about two-thirds of the drop. On Friday, trades of 296 stocks were cancelled.

In the aftermath of that selloff, the Securities and Exchange Commission and the major stock exchanges all agreed Monday on the basic framework to strengthen "circuit breakers" and methods for handling erroneous trades.

The European rescue package, valued at close to $1 trillion U.S. over three years, includes government-backed loans, the expansion of a stabilization program and funding from the International Monetary Fund (IMF)

Under the deal, the 16 European Union (E.U.) countries will provide a collective $570 billion U.S. in the form of government-backed loans. The European Commission, the EU's governing body, will provide another $76 billion U.S. under an already existing stabilization fund. The IMF will provide at least $284 billion U.S.

Additionally, the European Central Bank said it would start buying government and corporate debt. The ECB was said to have started buying euro zone government bonds Monday, although details were not available.

Finally, the Federal Reserve joined central banks in Canada and Europe in re-establishing a program that makes more U.S. dollars available for interbank lending.

Gains were broad-based, with 29 of 30 Dow components rallying. The lone decliner was Wal-Mart Stores, which lost 0.3%.

Big contributors to the Dow's gains were aerospace firms Boeing and United Technologies, heavy-equipment maker Caterpillar, tech firms IBM and Hewlett-Packard, as well as 3M, McDonald's and Procter & Gamble.

Mortgage backer Fannie Mae asked for another $8.4 billion U.S. from the federal government Monday after reporting a massive first-quarter loss. The losses were due to accounting changes and the continued weakness in the U.S. housing market.

Fannie Mae, along with fellow mortgage company Freddie Mac, was put under government conservatorship during the height of the financial crisis in fall 2008. It already owed the government $76.2 billion U.S.

Last week, Freddie Mac asked for another $10.6 billion U.S. after posting an $8-billion U.S. quarterly loss.

Treasury prices dropped sharply, raising the yield on the 10-year note to 3.54% from Friday's 3.43%. Treasury prices and yields move in opposite directions.

The price of a barrel of oil perked up $2.12 to $77.23 U.S.

Gold prices slid nine dollars to $1,201 U.S. an ounce.