TSX jumps, loonie drops after U.S. Fed hikes rate

TORONTO -- The TSX shot up by more than 200 points for the second straight day Wednesday as investors in search of a deal jumped back into the market after last week's slump and the U.S.

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Federal Reserve said it would raise interest rates for the first time since the financial crisis.

The S&P/TSX composite index soared 246.51 points to end the day at 13,166.08, after gaining 224 points on Tuesday.

Scott Guitard, portfolio manager at Fiduciary Trust Canada, said the Fed's decision gave investors the certainty to buy back into the Toronto market, which lost more than 550 points last week as the price of oil traded below US$36 a barrel.

"The market as a whole is happy to get this first rate hike out of the way and potentially focus on other things, like the state of the economy," he said.

In New York, markets posted solid gains after the Fed said the American economy was doing well enough to digest a quarter-point hike in its key rate, ending a seven-year period of near-zero borrowing rates.

Federal Reserve chairwoman Janet Yellen said the U.S. central bank will look to make further increases in the year ahead as the American economy get stronger.

The Dow Jones average closed up 224.18 points at 17,749.09, the S&P 500 index added 29.66 points to 2,073.07 and the Nasdaq gained 75.77 points to 5,071.13.

Guitard said the widely predicted move is a positive signal for investors because it means the central bank believes the American recovery has made its economy strong enough to absorb a higher interest rate.

"The market reaction was pretty muted after the announcement, and that basically confirmed that investors were expecting this move," he said.

On the commodity markets, the February gold contract added $15.20 to settle at US$1,076.80 an ounce and the January contract for natural gas fell 3.2 cents to US$1.79 per mmBtu.

The January crude oil contract dropped $1.83 to US$35.52 a barrel after data from the U.S. Energy Information Administration showed American oil inventories had grown to levels not seen at this time of year since the 1930s.

The loonie see-sawed in afternoon trading after the Fed's announcement, ending the trading day down 0.25 of a U.S. cent at 72.54 cents US.

Guitard said the falling price of oil was a key factor in the exchange rate, as the market had already priced in the rate hike.

He said investors expect the Bank of Canada to keep rates low as the struggling oilpatch drags on growth.

"The Canadian dollar has been trading very closely with crude oil prices, and that affects the interest rate expectations for Canada," he said.


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