TORONTO - Stock markets closed sharply higher Tuesday after the U.S. Federal Reserve cut its key interest rate to a range of zero to 0.25 per cent -- a record low, and down from the one per cent target in place since October.
"And they said they will keep it there for what is being implied as a lengthy period of time, so there's a commitment to low rates," said John Johnston, chief strategist at the RBC Dominion Securities Harbour Group.
While the Fed may be running out of interest rate options, Johnston noted the Fed made it clear that "it will do what it has to do, it will invent more tools to use if it has to -- so this is as aggressive as it gets."
New York's Dow Jones industrial average ran ahead 359.05 points to 8,924.14.
In Toronto, the S&P/TSX composite index moved up 262.28 points to 8,724.11 as all sectors except health care turned positive.
The Canadian dollar rose as much as 2.25 cents and closed with a gain of 2.02 cents at 83.21 cents US. The American currency weakened after the Fed made clear it will flood the system with greenbacks to encourage spending.
The TSX financial group turned positive after the Fed move, rising 1.5 per cent. But Bank of Montreal fell $2.22 or 6.8 per cent to $30.35 following news of a $1-billion-plus stock offering at $30 per share. It was the latest in a series of moves by the big banks to bolster their capital reserves.
"The thinking is the market is tired of eating up these deals -- and how much appetite really is there?" said Chyanne Fyckes, chief investment manager at Stone Asset Management.
Still, she noted that the banks "have to get their Tier 1 capital ratio up to make people feel more comfortable."
Royal Bank (TSX:RY), which floated a $1-billion share issue last week, gained 65 cents to $34.90.
The TSX Venture Exchange was up 6.65 points to 723.46.
In New York, the Nasdaq composite index gained 81.55 points to 1,589.89 while the S&P 500 index rose 44.61 points to 913.18.
The move by the Federal Reserve came amid ongoing weak economic data on both sides of the border.
Statistics Canada reported manufacturing sales decreased 1.8 per cent in October to a seven-year low.
And the U.S. Commerce Department said home starts fell to an annual rate of 625,000 in November, down 18.9 per cent from October in the steepest drop since 1984.
Meanwhile, American consumer prices plunged 1.7 per cent last month -- the steepest one-month decline on records going back 61 years as fuel costs eased sharply.
The TSX energy sector moved ahead 3.75 per cent although the January crude contract on the New York Mercantile Exchange slipped 91 cents to US$43.60 a barrel. Oil traders appear to have discounted an expected output-quota cut Wednesday by the Organization of Petroleum Exporting Countries.
On the TSX, EnCana Corp. (TSX:ECA) improved $2.87 to $57.82 and Suncor Inc. (TSX:SU) advanced $1.40 to $26.61.
The base-metal sector was up 3.25 per cent with Teck Cominco Ltd. (TSX:TCK.B) ahead 33 cents to $5.98 while Inmet Mining Corp. (TSX:IMN) climbed $1.93 to $19.42.
The industrial group gave major lift to the TSX, rising more than four per cent with Canadian National Railway (TSX:CNR) ahead $2.09 to $44.
The telecom sector was up slightly but Telus Corp. (TSX:T) declined a dime to $34.03 after disclosing it expects next year's operating profit will be flat while revenue grows four to six per cent. Telus also plans to boost capital spending by 12 per cent to $2.05 billion.
In American corporate news, Goldman Sachs Group Inc. suffered its first quarterly loss since it went public in 1999, losing US$2.29 billion during its fourth quarter. Shares in what is considered Wall Street's premier investment bank rose $10.05 to US$76.51.
Best Buy Co., the biggest consumer electronics retailer in the U.S., said its third-quarter profit sank as it faced dramatic changes in consumer spending. It will offer buyout packages to most of its corporate employees and cut capital spending by half in 2009. Best Buy shares rose $4.21 to US$27.68.
