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At the open: TSX near six-week high as energy leads gains

A Toronto Stock Exchange (TSX) logo is seen in Toronto in this file photo.

© Mark Blinch / Reuters

Canada's main stock index rose on Tuesday as energy stocks, buoyed by oil prices near five-month highs, led the index to its highest since Aug. 9.

The Toronto Stock Exchange's S&P/TSX composite index rose 33.96 points, or 0.22 per cent, to 15,270.63.

The technology group was the lone decliner among the index's 10 key sectors

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U.S. stocks opened slightly higher on Tuesday, with the Dow hitting another record, ahead of the two-day Federal Reserve meeting that is expected to roll out a plan to pare the central bank's bond holdings.

The Dow Jones Industrial Average rose 31.18 points, or 0.14 per cent, to 22,362.53. The S&P 500 gained 3.04 points, or 0.12 per cent, to 2,506.91. The Nasdaq Composite added 10.62 points, or 0.16 per cent, to 6,465.26.

Investors do not expect the central bank to increase interest rate in the meeting but will closely watch Fed Chair Janet Yellen's views on inflation, which remains stuck below the Fed's 2-per-cent target rate.

"If I'd be watching anything, it would be primarily with regard to their plans to raise rates in December, which now the market has a 50-50 odds on," said Randy Frederick, vice president of trading and derivatives for Charles Schwab in Austin, Texas.

However, the biggest determinant (a Dec. rate hike) will be how the equity and bond markets react to the reduction of Fed's bond portfolio, said Frederick.

Any reduction in the balance sheet could make it harder for banks and investors to borrow certain Treasuries in the repurchase agreement market, making it more difficult and expensive to bet on or protect against interest rate increases.

U.S. stocks have been breaching record levels, with the Dow clocking a closing record for the fifth day in a row on Monday and the S&P closing at a record for the second consecutive session.

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Investors will also watch U.S. President Donald Trump's speech at the United Nations General Assembly where he is expected to urge U.N. member states to increase pressure on North Korea to give up its nuclear weapon ambitions. The speech is scheduled at 10:30 a.m. ET.

U.S. Defense Secretary Jim Mattis hinted on Monday about the existence of military options on North Korea that might spare Seoul from a brutal counterattack. But he declined to say what kind of options he was talking about or whether they involved the use of lethal force.

Data showed U.S. homebuilding fell for a second straight month in August as a rebound in the construction of single-family houses was offset by weakness in the multifamily home segment.

Among stocks, Tesla was down 2 per cent in early trading after Jefferies started coverage of the electric car maker's stock with "underperform."

Oil prices edged higher on Tuesday, trading close to five-month highs after key Middle Eastern producers showed they continued to comply with output cuts under an OPEC-led deal that Iraq's oil minister said could be extended or deepened.

A weaker U.S. dollar also lent support to dollar-denominated commodities such as oil, traders said.

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Benchmark Brent crude futures were up 6 cents at $55.54 a barrel, not far off a five-month high of $55.99.

U.S. West Texas Intermediate (WTI) crude futures were up 34 cents at $50.25.

Sentiment has been buoyed since last week when the International Energy Agency (IEA) lifted its 2017 demand outlook and the Organization of the Petroleum Exporting Countries estimated that the world would need more of its crude next year.

"The bullish trend for oil is fed by a few factors, like upward revisions in oil demand from OPEC and the IEA, Saudi Arabian exports dropping to a three-year low in the summer and, last but not least, continuing weakness of the U.S. dollar," said Frank Schallenberger, head of commodity research at LBBW.

Adding to the bullish mood, OPEC's second-biggest producer Iraq said on Tuesday that the group was discussing several options for its supply pact, including an extension beyond March and a further output cut.

Iraq itself has limited output by about 260,000 barrels per day (bpd), its oil minister said, exceeding its 210,000 bpd quota agreed under the OPEC-led pact.

His comments come a day after official export data showed that Saudi Arabian July crude exports dropped to the lowest level in three years, highlighting its own compliance with the restrictions.

OPEC will meet again with non-OPEC nations on Friday to discuss progress of the supply pact.

Nigeria and Libya will also send representatives to the meeting despite being exempt from the current deal, an OPEC source told Reuters. Rising output from both countries has kept a lid on oil price gains, prompting suggestions that they could be included in the deal.

Rising crude prices, meanwhile, have encouraged drilling in U.S. shale oil regions. The U.S. government said on Monday that it expects shale output to rise for a 10th straight month in October.

"This will make it more difficult for OPEC to achieve the desired market balance," Commerzbank analysts said.

Output across seven shale plays is forecast to rise by nearly 79,000 bpd to 6.1 million bpd, according to the U.S. Energy Information Administration.

Traders also kept a close watch on the progress of Hurricane Maria in the Caribbean. Although it remains far from the U.S. oil production heartland in the Gulf of Mexico, it could dampen oil demand and disrupt maritime trading routes.

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