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At the open: TSX dips ahead of Federal Reserve policy statement

Chairman of the U.S. Federal Reserve Ben Bernanke is seen on a monitor via teleconference in Chicago, May 10, 2012. Market players will be watching intently this week for clues that the Fed is about to begin scaling back its huge monetary stimulus, a key support of stock and bond prices.


The Toronto stock market was lower Wednesday as traders hoped that the U.S. Federal Reserve will shed some light on what it intends to do about curbing some of its economic stimulus.

The S&P/TSX composite index index declined 23.95 points to 12,343.51 ahead of the end of the Fed's two-day meeting on interest rates and an announcement at 2 p.m. EDT. This will be followed by a news conference with Fed chairman Ben Bernanke at 2:30 p.m.

The Canadian dollar was ahead 0.1 of a cent to 98.04 cents (U.S.).

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U.S. indexes were generally weak as the Dow industrials dipped 5.21 points to 15,313.02, the Nasdaq gained 1.63 points to 3,483.81 while the S&P 500 index was off 0.63 of a point to 1,651.18.

A cloud of uncertainty settled over markets after Bernanke first mentioned the possibility of tapering the Fed's monthly purchases of $85-billion (U.S.) of bonds during congressional testimony on May 22. Analysts don't expect the Fed to make a move on tapering just yet. But uncertainty over whether the Fed feels economic conditions are appropriate for such easing, along with questions about how much the bank might cut back, has resulted in volatility where daily, triple-digit moves have become almost routine.

The bond purchases, the third round of quantitative easing embarked on by the Fed in the wake of the 2008 financial collapse and subsequent recession, have kept interest rates and bond yields low. They have also helped keep a strong rally on most stock markets going for all this year.

BMO Capital Markets senior economist Michael Gregory thinks the Fed wants to reinforce two messages.

"First, QE adjustments are data dependent, so market participants ought to frame their QE expectations around their economic forecasts, not their QE withdrawal fears," he said.

"Second, slowing and stopping QE is the end of easing, not the beginning of tightening; rate hikes will still be far away (and perhaps now further away than before)."

Worries that the Fed may scale back its bond purchase program have also had an impact on emerging markets in recent weeks. The super-easy monetary policies by central banks in advanced economies like the U.S. prompted money to flow into Asian markets, which could see a reversal when the global central banks unwind their aggressive stimulus programs.

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The telecom sector was off 1.1 per cent with Telus Corp. down 55 cents to $34.89.

The tech component fell 0.7 per cent with BlackBerry down 54 cents to $14.59. The stock had risen about three per cent Tuesday after RBC Dominion Securities boosted its outlook for the company, predicting a profit this fiscal year instead of a loss thanks to stronger-than-expected shipments of its new BlackBerry 10 devices.

But the stock slid Wednesday after Bernstein Research lowered its rating to underperform from market perform. Analyst Pierre Ferragu said his own channel checks at carriers show that consumer appetite for the new BlackBerry 10 smartphones is weakening, and he thinks the company will miss analyst expectations for the second half of this year.

The July crude contract on the New York Mercantile Exchange ahead 11 cents to $98.55 (U.S.) and the energy sector dipped 0.05 per cent.

Statoil says it is evaluating a new discovery of high-quality oil about 500 kilometres northeast of St. John's, N.L. The Harpoon discovery is about 10 kilometres from the Mizzen discovery, which is estimated to hold between 100 million and 200 million barrels of oil. Statoil has a 65 per cent interest in the Harpoon discovery and the remaining 35 per cent is owned by Calgary-based Husky Energy. Husky shares were ahead six cents to $28.39.

Commodity prices were mixed with the July copper was three cents lower to $3.13 (U.S.) a pound. The base metals group was off 0.2 per cent and HudBay Minerals fell 14 cents to $7.60.

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The consumer staples sector was up 0.35 per cent with convenience store chain Alimentation Couche-Tard up 47 cents to $62.75. The stock has soared more than eight per cent over the past week on speculation the company could buy the retail operations of oil and gas giant Hess, which owns about 1,350 gasoline stations in 16 East Coast states. Couche-Tard recently said it has the capacity to spend $1.5-billion on acquisitions. Hess announced in May that it will exit its retail, energy marketing and energy trading businesses following pressure from its third-largest shareholder – activist investor Elliott Management – to break up the firm.

The gold sector rose about 0.2 per cent while August bullion rose $6.30 to $1,373.20 (U.S.) an ounce. Barrick Gold Corp. gained 20 cents to $19.44.

Elsewhere on the corporate front, Valeant Pharmaceuticals International, Inc. has priced its previously announced public offering of shares aimed at helping finance the $8.7-billion (U.S.) acquisition of eye care company Bausch + Lomb. Valeant will issue slightly more than 23.5 million common shares at a price of $85 per share, for aggregate gross proceeds of some $2-billion. Valeant shares rose 22 cents to $87.96.

Cenovus Energy Inc. said Tuesday that it plans to massively increase the amount of oil it ships by rail by the end of 2014 as the fates of contentious pipeline projects remain undecided. It expects to move 30,000 barrels per day by rail by the end of 2014 – triple the 10,000 it's anticipating by the end of 2013. Its shares lost 14 cents to $30.36.

Shipping giant FedEx posted quarterly earnings of $2.13 (U.S.) a share ex-items, handily beating estimates of $1.96. Revenues came in at $11.4-billion, missing estimates of $11.44-billion and its shares were ahead 3.18 per cent to $102.64 (U.S.).

European bourses were lower with London's FTSE 100 index down 0.5 per cent, Frankfurt's DAX dropped 0.22 per cent and the Paris CAC 40 declined 0.09 per cent.

Earlier in Asia, trading was mixed. While, the Nikkei 225 stock average rose 1.8 per cent, Hong Kong's Hang Seng index fell 1.1 per cent and South Korea's Kospi index shed 0.7 per cent.

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