Toronto stock market builds on gains from strong Chinese manufacturing data

TORONTO - The Toronto stock market registered a solid gain for a second session Friday as investors built on strong manufacturing data from China.

However, there was some disappointment with a much weaker than expected report on U.S. home sales.

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"Because the markets are hyper sensitive to not only the levels of anything coming out of China but direction, that HSBC flash manufacturing number really caught everyone’s attention," said Robert Gorman, chief portfolio strategist at TD Waterhouse.

"And it really helped sentiment, you could see that following through."

The Canadian dollar was well off session lows, down 0.04 of a cent to 95.05 cents US while the greenback weakened after the U.S. Commerce Department said new-home sales dropped 13.4 per cent during July to a seasonally adjusted annual rate of 394,000. That’s down from a sales pace of 455,000 in June, which was revised sharply lower from a previously reported 497,000.

"The data may have markets reassessing U.S. growth and when (or by how much) the Fed will taper QE," said CIBC World Markets economist Andrew Grantham.

Elsewhere on the economic calendar, Statistics Canada said the July consumer price index came in at an annualized rate of 1.3 per cent, up from 1.2 per cent in June. Economists had looked for Canada's inflation rate to rise by two-tenths of a point to 1.4 per cent.

The loonie has been under severe pressure, tumbling about two U.S. cents this past week as the American dollar rose against other currencies amid growing conviction that the U.S. Federal Reserve will move this year to cut back on its monetary stimulus.

The Fed has been buying US$85 billion of bonds every month in a measure known as quantitative easing to keep rates low and encourage investment. There is still a great deal of doubt about when the Fed might embark on tapering its asset purchases and the pace of such a cutback.

U.S. indexes were slightly higher despite the housing data with the Dow Jones industrials nine points higher to 14,972.74.

The Nasdaq climbed 10.3 points to 3,649.01, supported by a six per cent rise in Microsoft shares after the software giant announced that CEO Steve Ballmer is retiring in the next 12 months. The S

The gold sector led TSX advancers, up almost three per cent while December bullion moved up $25.50 to US$1,396.3050 an ounce. Iamgold (TSX:IMG) improved by 29 cents to C$6.96 while Barrick Gold Corp. (TSX:ABX) climbed 66 cents to $21.23.

The base metals component rose one per cent while September copper was up a cent at US$3.34 a pound. Lundin Mining (TSX:LUN) gained 10 cents to $4.73 and Teck Resources (TSX:TCK.B) climbed 51 cents to $27.84.

The TSX tech sector also rose one per cent with BlackBerry (TSX:BB) ahead 16 cents to $10.91.

The energy sector gained 0.8 per cent with the October crude contract on the New York Mercantile Exchange erased early gains to move up 90 cents to US$105.93 a barrel. Suncor Energy (TSX:SU) rose 71 cents to C$36.09.

Financials were also positive ahead of earnings reports next week from most of the big Canadian banks. TD Bank (TSX:TD) was ahead 79 cents to $88.76.

Speculation about what the Fed may do about its asset purchases has driven bond yields higher. On Friday, the benchmark 10-year U.S. Treasury was down 0.07 f a point from late Thursday afternoon at 2.81per cent.

But bond yields are still up a good 120 basis points since Fed chairman Ben Bernanke first mentioned the possibility of the Fed tapering its bond purchases in May.

Those rising bond yields have particularly impacted interest sensitive stocks including utilities and telecoms. The utilities sector is down almost three per cent this week alone and more than eight per cent this month. Telecoms have also retreated, down about 1.75 per cent this week although the sector has also been pressured recently by the prospect of American telco giant Verizon entering the Canadian wireless market.

U.S. markets have also softened this month following a strong runup that saw the Dow up as much as 20 per cent year to date at the beginning of August.

In other corporate news, Maple Leaf Foods Inc. (TSX:MFI) is selling its Rothsay business unit to Darling International Inc. of Irving, Texas. The Rothsay business operates six rendering plants and a biodiesel plant employing a total of 550 in four provinces. Maple Leaf says it will receive about $645 million for Rothsay and use the money to pay down corporate debt and its shares gained $1.21 or nine per cent to $14.60.

European bourses were higher and London's FTSE 100 index gained 0.8 per cent, Frankfurt's DAX rose 0.33 per cent while the Paris CAC 40 added 0.22 per cent.