08/21/2012 05:34 EDT | Updated 10/21/2012 05:12 EDT

TSX higher on fresh euro optimism

Canada's benchmark stock index rose Tuesday, buoyed by encouraging news out of Europe that the continent's central bank will reduce the borrowing costs of heavily indebted nations.

The S&P/TSX Composite Index gained as much as 120 points during the day, but retreated to close with a modest gain of 40.89 points at 12,116.92.

The Canadian dollar was also well off session highs, moving down 0.13 of a cent to 101.04 cents after earlier hitting a fresh 3 1/2-month high of 101.6 cents US amid rising commodity prices.

The energy sector rose 0.32 per cent as the September crude contract on the New York Mercantile Exchange gained 71 cents to $96.68 US a barrel. Cenovus Energy rose 44 cents to $33.31 in Toronto.

The September copper contract on the New York Mercantile Exchange reversed Monday's five-cent loss, climbing eight cents to $3.45 US a pound.

U.S. markets lower

U.S. markets also gave up early gains as the Dow Jones industrials fell 68.06 points to 13,203.58, the Nasdaq composite index was down 8.95 points at 3,067.26 and the S&P 500 index slipped 4.96 points to 1,413.17.

Spain has hinted it would seek a bailout from the ECB (European Central Bank) if the conditions were reasonable, but the agency's hands are a bit tied by powerful member nations.

Germany's central bank has been cool to the idea of the ECB extending any more olive branches to Europe's weaker sisters, but economists say the German central bank is unlikely, on its own, to block the ECB from going ahead with some form of rescue plan. Even German Chancellor Angela Merkel has sounded open to the ECB's ideas.

"There's all these expectations but we're currently in a waiting period until these events happen, to see if these expectations become reality, said Gareth Watson, vice-president investment management and research, Richardson GMP Ltd.

"If nothing happens in the next three weeks . . . this market could easily turn the other way very quickly."