BUSINESS
10/05/2011 08:26 EDT | Updated 12/05/2011 05:12 EST

Stock markets head for higher open amid hopes for European bank plan

TORONTO - The Toronto stock market snapped a three-session losing streak Thursday, led by a strong advance in energy company shares as oil prices surged on indications of rising demand.

The S&P/TSX composite index rose 279.3 points to 11,457.22 as investors moved in to pick up stocks that had been badly beaten down in price during the latest run of sharp losses.

"You're seeing a recovery in a lot of the sectors today," said Jeff Bradacs, portfolio manager at Manulife Asset Management.

"Technology and energy sectors have been impacted by the recent selloff — they're oversold and there's a rebound in those sectors today."

The junior TSX Venture Exchange rose 80.31 points to 1,413.65.

The Canadian dollar rose 1.34 cents to 96.14 cents US as investors moved back into riskier investments after shifting to the safe haven U.S. dollar in recent sessions.

U.S. markets were also positive amid good news on employment and from the U.S. non-manufacturing sector with the Dow industrials ahead 131.24 points to 10,939.95. The Nasdaq rose 55.69 points to 2,460.51 while the S&P 500 index was up 20.09 points to 1,144.04.

Investors bought up energy company stocks as crude oil for November delivery surged $4.01 to US$79.68. Oil broke a three-session losing streak after a weekly government supply report surprised markets by showing a steep decline in crude inventories, which indicated demand may be growing. On Tuesday, oil fell to its lowest level in a year.

The TSX energy sector ran ahead almost five per cent and Canadian National Resources (TSX:CNQ) was typical of advancers, up $1.78 to $30.68.

Prices for oil and metals have taken a huge hit since early August when investors started to get concerned that global growth was faltering and there was a growing possibility that economies could slide back into recession.

That in turn has resulted in large losses in energy and mining companies on the resource-heavy TSX as oil prices have slid about 17 per cent in the last two months while copper has plunged 31 per cent.

Copper is widely viewed as a barometer for the health of the overall global economy since it is used in electronics, homes and infrastructure.

The financial sector provided extra lift amid reports that European Union officials are examining plans to help banks manage the fallout from the European debt crisis.

Bank stocks advanced after European Commissioner Olli Rehn hinted at a possible bank recapitalization plan in an interview with the Financial Times Tuesday but didn't provide any details. Scotiabank (TSX:BNS) was one of the strongest performers, up $1.54 to $51.74.

Investors have also been concerned about a possible debt default by Greece, which could cause havoc on the European financial sector. However, recapitalizing eurozone banks could limit the damage to the financial system should the Greek government default.

Canadian banks aren't heavily exposed to European bank debt but a default by Greece would still worsen global economic conditions and likely impact their bottom line.

Despite the rise in the financial sector, there is still much doubt about the bank recapitalization report in light of several disappointments from European leaders since the eurozone's debt crisis worsened early in 2010.

"The market is really skeptical that they can come to a resolution on this," said Bradacs.

And he expects the intense volatility that has become familiar on stock markets to continue "until European politicians can get ahead of the problem rather than apply a Band-Aid solution."

Buying sentiment was helped by data that pointed to an expanding U.S. economy and job creation.

The Institute for Supply Management's non-manufacturing index showed the services sector expanded in September, which was in line with expectations and just slightly lower than the August reading.

And two days before the release of the U.S. government's non-farm payrolls report for September, payrolls firm Automatic Data Processing said that the U.S. private sector added 91,000 jobs last month. Economists hope the overall economy created around 55,000 jobs last month.

The surge on the TSX followed sharp losses over the past three sessions which had left Canada's biggest stock market in bear market territory, about 22 per cent from its 2011 highs from early March.

Elsewhere on the TSX, shares in tech sector heavyweight Research In Motion (TSX:RIM) jumped $2.29 or 10.43 per cent to $24.49 following a report from the U.K.-based newspaper The Independent, which suggested European telecommunications giant Vodafone could be interested in buying the BlackBerry maker.

Other commodities were mixed with December gold in New York ahead $25.60 to US$1,641.60 an ounce, leaving the gold sector up about 2.5 per cent. Goldcorp Inc. (TSX:G) climbed $1.44 to $47.38.

The base metals sector was 5.63 per cent higher while December copper prices were unchanged at US$3.11. Teck Resources (TSX:TCK.B) climbed $ to C$ and HudBay Minerals (TSX:HBM) was ahead cents to $ .

Railroad stocks also rose alongside commodity stocks with Canadian National Railways (TSX:CNR) ahead $ to $ .

Elsewhere on the tech front, shares in Yahoo Inc. (NASDAQ:YHOO) gained over 10 per cent to US$15.92 on reports Microsoft (NASDAQ:MSFT) is interested in making a bid for the Internet company. Microsoft shares gained 2.25 per cent to US$25.91.

In other corporate news, Talisman Energy Inc. (TSX:TLM) lowered its full-year production forecast to about 425,000 barrels of oil per day, down from a previous estimate of 430,000 to 440,000 barrels, as it resumes production at its Rev facility in Norway. Its shares fell 40 cents to $11.75.

Precision Drilling Corporation (TSX:PD) has signed deals to build eight new rigs for the Canadian and U.S. oil and gas industry. Financial terms of the contracts were not revealed by the big Calgary-based drilling services company. Its shares gained 34 cents to $9.41.

Costco Wholesale Corp.’s fiscal fourth-quarter net income climbed 11 per cent to US$478 million as the wholesale club operator made more money on membership fees and saw sales rise. But the performance missed analysts’ expectations. The company also said it will raise annual membership fees starting next month.