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At midday: TSX slightly higher amid euro zone inflation worries


The Toronto stock market registered a modest gain at midday, as further weak inflation data from the euro zone raised expectations that the European Central Bank will take action to support a fragile recovery.

The S&P/TSX composite index climbed 21.66 points to 14,702.42.

Investors also digested a positive earnings report from Hudson's Bay Company (TSX:HBC), which moved from a year-ago loss to a profit.

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HBC posted first-quarter net earnings from continuing operations of $176 million or 97 cents a share, compared with a loss of $22 million or 19 cents a share in the same quarter of 2013. Retail sales jumped to $1.85 billion, up from $884 million in the same quarter last year. Same stores sales, which are stores that have been open for at least a year, were up 2.8 per cent year-over-year. But its shares slipped two cents to $17.25.

"The numbers were actually not all that bad but I don't think (they) were good enough to move the needle," said Stephen Carlin, vice president, Canadian Equities at CIBC Asset Management, said about HBC's results.

The Canadian dollar was down 0.1 of a cent to 91.66 cents US a day before the Bank of Canada delivers its next interest rate announcement.

U.S. indexes were also in the red despite the April report on U.S. factory orders which showed a gain of 0.7 per cent, better than the 0.6 per cent rise that economists had expected.

The Dow Jones industrials dropped 41.77 points to 16,701.86, the Nasdaq shed 9.09 points to 4,228.11 while the S&P 500 index dipped 3.94 points to 1,921.03.

The European Union's statistics agency said that inflation in the euro zone came in at 0.5 per cent in May, down from 0.7 per cent in April and short of forecasts for 0.6 per cent.

The data raised concerns that the 18-country eurozone could fall into outright deflation, a sustained drop in consumer prices that chokes off growth as consumers delay purchases and businesses postpone investment. It also elevated expectations that the ECB will announce stimulus measures as part of its scheduled rate announcement on Thursday.

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"(With) this kind of low inflation rate and the kind of growth they're seeing there, there is an expectation that they will throw some kind of stimulus in," added Carlin, noting the No.1 priority for the ECB is to deal with inflation.

"What it is, who knows? But it could be a combination of small rate decline, the European version of a quantitative easing."

U.S. automakers also release sales figures during the day.

General Motors saw sales rise 13 per cent from a year ago and its shares added 13 cents to US$34.99.

Ford's sales rose three per cent even as truck sales dropped four per cent after the automaker cut back on incentives. Its shares rose nine cents to $16.53.

The TSX moved off early lows as the energy sector gained momentum, up 0.35 per cent even as June crude up 23 cents at US$102.70 a barrel.

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The base metals component led TSX decliners, down 1.3 per cent while July copper declined three cents to US$3.14 a pound.

The gold sector was off 0.5 per cent as August bullion rose $1.20 to US$1,25.20 an ounce.

In other corporate developments, Element Financial Corp. (TSX:EFN) will pay US$1.4 billion cash to buy PHH Corp.'s North American fleet management services business. PHH Arval had about US$4.6 billion of assets as of March 31, including US$4 billion invested in fleet leases. Element Financial shares fell 21 cents to C$13.09.

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