The Toronto stock market was higher Tuesday amid strong U.S. economic data but sentiment was still weighed down by concern about central banks and interest rates.
The S&P/TSX composite index gained 119.61 points to 11,956.47 following a string of losses on concerns about the prospect of the U.S. Federal Reserve turning off the stimulus taps as well as trouble in China's credit system.
The Canadian dollar slipped 0.27 of a cent to 95.1 cents (U.S.).
U.S. indexes were also positive with the Dow industrials up 104.64 points to 14,764.2, the Nasdaq up 16.65 points to 3,337.4 and the S&P 500 index climbed 12.29 points to 1,585.38.
The Standard & Poor's/Case-Shiller 20-city home price index shows 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 back 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 $85-billion (U.S.) 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 2.58 per cent Tuesday morning, 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.
Markets feared the move could hurt economic growth. China's major state-owned banks are unwilling to lend to any but their biggest clients, so the vast majority of smaller businesses must rely on informal lending.
Traders were reassured on that front Tuesday after comments from the People's Bank of China and other key government agencies. The central bank promised "liquidity support" if needed after a shortage of money in credit markets caused the interbank rate to spike last week. That caused Chinese stock markets to plunge Monday on fears the world's second-largest economy might face a credit crisis.
The bank appeared to soften its tougher line of Monday, when it said markets had adequate liquidity and blamed the credit crunch on mismanagement by banks.
Traders also took in some major acquisition news in the health care sector.
Two of Canada's largest medical lab operators will be combined under a $1.22-billion friendly takeover deal backed by one of Ontario's largest public sector pension funds. LifeLabs Medical Laboratory Services will pay $10.75 per share cash and assume $255-million of debt to acquire all of CML HealthCare Inc. of Mississauga, Ont.
CML shares jumped $3.41 to $10.61.
Several major financial services companies, including Royal Bank of Canada, are planning to set up a new Canadian stock market. The venture, to be called Aequitas Innovations Inc., would be an alternative to the Toronto Stock Exchange and other markets owned by TMX Group Inc. TMX shares dropped 33 cents to $43.47.
The information technology sector was the biggest percentage advancer, up two per cent. BlackBerry was ahead 36 cents to $15.11 as the company launched a business service for corporate and government workers with Google Android and Apple smartphones. Called the Secure Work Space, it allows these users to separate their data and work apps, such as email and calendars, from their personal apps, bringing a greater level of security.
Commodity prices were mainly higher following a series of steep losses caused by demand concerns and the higher U.S. currency. The TSX base metals component rose 1.6 per cent as the July copper contract on the New York Mercantile Exchange was ahead six cents at $3.08 (U.S.) a pound. First Quantum Minerals advanced 29 cents to $14.58 (Cdn) while Teck Resources improved by 38 cents to $21.60.
August crude on the Nymex was 51 cents higher to $95.69 (U.S.) a barrel and the energy sector rose almost one per cent. Canadian Natural Resources was ahead 40 cents to $29.75 (Cdn).
Consumer discretion stocks also advanced with auto parts maker Magna International up 85 cents to $71.46.
The gold sector was the only decliner, down a slight 0.2 per cent while August bullion dipped $2.20 to $1,274.90 (U.S.) an ounce. Iamgold was up five cents to $4.34 (Cdn).
European bourses were positive as London's FTSE 100 index rose 1.36 per cent, Frankfurt's DAX and the Paris CAC 40 gained 1.5 per cent.