08/16/2012 08:36 EDT | Updated 10/16/2012 05:12 EDT

Central bank hopes, rising commodities push TSX to best close in 3 1/2 months

TORONTO - The Toronto stock market closed at a 3 1/2 month high Thursday as commodities gained ground in the wake of positive U.S. housing data and continued hopes that central bankers can keep a fragile recovery on the rails.

The S&P/TSX composite index ran ahead 127.14 points to 12,032.58 while the TSX Venture Exchange climbed 14.62 points to 1,221.25. The TSX hadn't closed above 12,000 since May 3 when the European government debt crisis worsened as the focus moved to Spain and Italy.

The loonie also closed at its best levels since early May, rising 0.24 of a cent to 101.35 cents US while Statistics Canada reported manufacturing shipments dropped 0.4 per cent in June.

Economists had expected a 0.3 per cent gain, but at the same time the agency revised the May showing to flat from a drop of 0.4 per cent. The commodity-sensitive currency found support from rising prices for oil and copper.

U.S. markets were also in the green even as a key measure of manufacturing in the U.S. Northeast came in worse than expected.

The Philadelphia Federal Reserve's manufacturing index registered a negative reading for a fourth month, coming in at minus 7.1, which was a bit better than July's reading of minus 12.9. But economists had expected a reading of minus 5.0.

The Dow Jones industrials ran ahead 85.33 points to 13,250.11, the Nasdaq composite index was ahead 31.46 points to 3,062.39, and the S&P 500 index edged up 9.98 points to 1,415.51.

Other data showed that U.S. builders slowed the pace of housing construction slightly in July as construction of single-family homes and apartments dipped 1.1 per cent in July compared with June to a seasonally adjusted annual rate of 746,000.

But in a hopeful sign for future construction, building permits increased 6.8 per cent to a seasonally adjusted annual rate of 812,000 in July. That is the highest level since August 2008.

Markets have rallied since the lows of the year in early June on optimism the world's central banks will do more to shore up the global economy. However, a string of positive U.S. economic data, including a strong reading on retail sales and industrial production, has raised doubts about what the Federal Reserve might do.

"On one hand, the market has anticipated a little bit of stimulus type of event and the market has moved up," said Monika Skiba, senior portfolio manager at Manulife Asset Management.

"On the other hand, if we have better economic data, such as higher employment, better growth, then the likelihood of (more stimulus) is lower now. We’re caught between the two."

While the European Central Bank is expected to restart its bond-buying program to keep a lid on the borrowing rates of Spain and Italy, the U.S. and Chinese monetary authorities are widely tipped to back more easing measures to boost their economies.

Chinese Premier Wen Jiabao, during a visit to eastern China earlier this week, was quoted by the official Xinhua news agency as saying the country has the "conditions and capabilities" to meet its 7.5 per cent economic growth target this year.

His comment helped push oil prices higher on top of a gain of almost US$1 Wednesday in the wake of data showing a much bigger than expected drawdown of American crude inventories last week. On Thursday, the September contract on the New York Mercantile Exchange edged up $1.27 to US$95.60 a barrel.

The energy sector rose 1.16 per cent while Canadian Natural Resources (TSX:CNQ) was ahead 74 cents to C$31.55.

The gold sector provided lift, rising about three per cent as December bullion rose $12.60 to US$1,619.20 an ounce. Goldcorp Inc. (TSX:G) climbed $1.69 to C$37.93.

Barrick Gold Inc. (TSX:ABX) was in focus as the world’s biggest gold miner said it was in talks that could result in the sale of its majority stake in African Barrick Gold to China’s largest gold producer. ABG is Tanzania's largest gold producer and one of the five largest gold producers in Africa, but production costs have been higher than anticipated, Barrick Gold said in its recent second-quarter financial report. Barrick shares ran up $1.34 to $35.60.

The base metals sector was up 2.85 per cent while copper prices rose three cents to US$3.38 a pound. First Quantum Minerals (TSX:FM) rose 56 cents to C$19.67.

The financials sector rose 0.85 per cent as Royal Bank (TSX:RY) advanced 73 cents to $53.45.

The telecom sector was the weakest component with Telus Corp. (TSX:T) $1.40 lower at $63.48.

Earnings news was uneven.

Cisco Systems raised its dividend after the close of markets Wednesday by 75 per cent to 14 cents a share as the company beat analyst expectations on quarterly earnings and revenue. Its shares surged 9.63 per cent to US$19.02.

Wal-Mart Stores Inc.'s second-quarter net income rose 5.7 per cent and the retailer raised its full-year profit outlook. But quarterly revenue came in short of expectations and its stock was down 3.09 per cent to US$72.15.

After the close, Gap Inc. handed in quarterly earnings of US$243 million or 49 cents a share, beating estimates by three cents. Gap, which operates stores under its namesake, Old Navy, Banana Republic and Athleta, also said Thursday that it’s raising its full-year profit guidance. But its shares were off 0.7 per cent in after hours trading in New York.

And Facebook sank 6.27 per cent to US$19.87 on the first day that its early investors and a handful of founders were free to sell their stock. It earlier hit an all time low of $19.69. In all, 271 million shares can be sold, according to Facebook’s regulatory filings. Facebook has plunged since its initial public offering, when it went as high as $45.