CANADA STOCKS-Banks drive small TSX gain as Fed meets

Tue Sep 17, 2013 5:16pm EDT

* TSX rises 17.23 points, or 0.13 percent, to 12,834.11
    * Seven of the 10 main index sectors advance
    * Potash Corp drops after rival cuts sector forecast
    * RBC has biggest positive influence on the index

    By John Tilak
    TORONTO, Sept 17 (Reuters) - Canada's main stock index
closed with a small gain on Tuesday with financial shares rising
as the market braced for the outcome of a two-day U.S. Federal
Reserve policy meeting that was expected to result in a slow
tightening of U.S. monetary policy.
     A jump in Valeant Pharmaceuticals International 
after Goldman Sachs resumed coverage of the stock with a
"conviction buy" rating also helped support the market.
    But gains were limited by a decline in fertilizer producer
Potash Corp a day after competitor Mosaic Co 
cut its third-quarter sales and price outlooks for fertilizer
ingredients potash and phosphate.
    All eyes were on the Fed, whose Open Market Committee 
meeting Tuesday and Wednesday was set to decide the fate of the
central bank's bond buying program. When the Fed announces the
results of the meeting on Wednesday, the market hopes for
clarity on when it will begin scaling back its stimulus program
and by how much.
    "The market seems to be relatively sanguine about things,"
said Gavin Graham, chief strategy officer at Integris Pension
Management Corp, adding that investors have already priced in a
moderate trimming of stimulus.
    "The market is saying, 'we've had this selloff in
anticipation. When we actually hear tomorrow what the pace of
tapering is, maybe it won't be as bad as we expected'," he
added.
    Still, some investors warned that Canadian equities will
vulnerable because of the market's high exposure to natural
resource prices. 
    "I'm seeing some downside potential," said Marcus Xu,
portfolio manager at MY Capital Management Corp in Vancouver.
    "If the market gets hammered because of the Fed, the metals
will go down with it," he added. "The metals and the golds are
still perceived as risky assets at this point."
    The Toronto Stock Exchange's S&P/TSX composite index
 closed 17.23 points, or 0.13 percent, higher at
12,834.11. 
    Seven of the 10 main sectors on the index rose.
    Financials, the index's most heavily weighted sector,
advanced 0.4 percent. The group has been gaining steadily after
Canadian banks reported strong results last month, with several
raising dividends.
    Royal Bank of Canada, the country's biggest lender,
added 0.6 percent to C$66.32 and played the biggest role of any
single stock in leading the index higher. Toronto-Dominion Bank
 climbed 0.7 percent to C$91.43.
    Valeant shares were up 1.3 percent at C$105.83, boosting the
healthcare group. 
    The materials sector, which includes mining stocks, advanced
0.2 percent, with the decline in Potash Corp offset by a rise in
gold producers.
    Goldcorp Inc climbed 1 percent to C$27.09, and
Barrick Gold Corp was up 0.6 percent, at C$18.87.
    Potash Corp fell 1.8 percent to C$33.45 and had the biggest
negative influence on the index. 
    Its shares are down about 14 percent since the breakup of a
Russian-Belarusian potash consortium on July 30. The breakup has
been expected to result in a drop in potash prices. 
    Graham said Potash's stock is a good buy at these levels,
given the company's strong cash flow generation and dividend
yields. 
    "With further weakness on the back of the Mosaic forecast,
you'd have to think the bad news is already reflected in how
badly it's performed."