09/20/2011 08:27 EDT | Updated 11/20/2011 05:12 EST

Stock markets to open higher, traders hope Greece can sidestep default

TORONTO - The Toronto stock market closed higher Tuesday, helped along in large measure by rising gold stocks as bullion prices charged ahead on worries about Greece's ability to avoid default and a downgrade on Italy's credit rating.

The S&P/TSX composite index rose 37.84 points to 12,209.88. Gold stocks led advancers as nervous investors pushed the December gold contract in New York up $30.20 to US$1,809.10 an ounce.

"The uncertainty and lack of confidence is certainly helping gold prices go to ever higher levels and that's translating into higher gold equity prices," said Tim Caulfield, co-lead manager of the Bissett Canadian Equity Fund in Calgary.

The TSX Venture Exchange dipped 9.97 points to 1,727.87. The Canadian dollar was off 0.4 of a cent to 100.64 cents US.

U.S. markets were weak as traders also looked to the start of a two-day policy meeting of the U.S. Federal Reserve. Many expect the central bank will announce some measures to jolt the sputtering American economy.

The Dow Jones industrial average gained 7.65 points to 11,408.66.

The Nasdaq composite index fell 22.59 points to 2,590.24 while the S&P 500 index slipped two points to 1,202.09.

Greece's finance minister held new talks with international debt inspectors late Tuesday. Evangelos Venizelos is trying to convince officials from the European Commission, International Monetary Fund and European Central Bank that its delayed cuts and public sector reforms are enough to keep up the flow of rescue loans to stave off a default.

Without that money, Greece's cash reserves will run out around mid-October, forcing a default that could plunge Europe's banking system into turmoil.

Standard and Poor's downgraded Italy's credit rating on Monday by one notch to A from A-plus in light of what it sees as the country's weakening economic growth prospects and higher-than-expected levels of government debt.

The Italian government said the S&P decision seemed politically motivated and out of touch with reality at a time when the government is working to boost growth and reduce its debts.

Meanwhile, some economists expect the Fed to eventually try for the third time to stimulate growth through a program to buy Treasurys in order to lower long-term interest rates at the end of its meeting Wednesday afternoon. That's a step known as "quantitative easing."

Last month, the Fed promised to keep its key interest rate near zero through mid-2013.

High expectations for the Fed come as the International Monetary Fund downgraded prospects for Canada and other advanced countries.

The IMF's new outlook said Canada's economy will remain positive but this year's growth rate will be just 2.1 per cent, falling to 1.9 per cent next year.

The IMF expects the U.S. economy to grow just 1.5 per cent this year and 1.8 per cent in 2012. That's down from its June forecast of 2.5 per cent in 2011 and 2.7 per cent next year.

"Certainly, it's a reminder of how precarious the global economic state is today," Caulfield added.

"The Fed for sure has done a lot already, to date, through what's been a fairly tepid U.S. economic recovery but I think there is certainly a lot of pressure on the Fed to act."

The gold sector ran ahead about four per cent as Goldcorp Inc. (TSX:G) climbed $2.59 to $52.62 while Barrick Gold Corp. (TSX:ABX) was ahead 84 cents to $53.72.

The financials sector gained 0.28 per cent with Royal Bank (TSX:RY) up 44 cents to $47.04.

National Bank of Canada (TSX:NA) shares gained 36 cents to $69.10 as the bank said it is bolstering its wealth management business with a deal to buy the Canadian full service investment advisory business of HSBC for $206 million in cash. HSBC Securities has $14.2 billion of assets under administration, managed by over 120 investment advisers in 27 offices across Canada.

Oil prices were higher following steep declines Monday on worry that a Greek default would worsen global economic conditions and discourage demand.

The October crude contract on the New York Mercantile Exchange gained $1.19 to US$86.89 but the energy sector lost early momentum and down 0.46 per cent. Canadian Natural Resources (TSX:CNQ) dropped 61 cents to $32.87 while Suncor Energy (TSX:SU) fell 51 cents to $28.89.

The base metals sector was the biggest decliner, down 3.9 per cent as the December copper contract on the Nymex fell heavily for a second session, down six cents at US$3.73. Teck Resources (TSX:TCK.B) fell $1.54 to $36.11 while First Quantum Minerals (TSX:FM) lost $1.47 to $17.94.

Techs also weighed with market heavyweight Research In Motion Ltd. (TSX:RIM) falling 85 cents to $22.60.

Air Canada has reached a tentative contract deal with the union for its flight attendants. The deal averts a possible strike that would have severely disrupted operations at Canada's biggest airline and its shares rose 11 cents to $1.70.

Shares in Bombardier Inc. (TSX:BBD.B) were off three cents at $4.21 after the transport giant said it plans to reduce production of its CRJ regional jet aircraft starting in January, but will not slash jobs as part of the move. The world's third-largest aircraft manufacturer announced the decision in an effort to align CRJ aircraft manufacturing with the market demand.