TSX gains on stimulus hopes, loonie slides along with oil prices

TORONTO (Reuters) - Canada’s main stock market index gained on Tuesday as hopes rose for policy stimulus to ease coronavirus-induced economic pain, but the rally ebbed as falling oil prices weighed on energy shares, while the Canadian dollar tumbled to a four-year low.

FILE PHOTO: Businessmen pass the Toronto Stock Exchange sing in Toronto, Ontario, Canada July 6, 2017. REUTERS/Chris Helgren

The U.S. Federal Reserve said it would relaunch financial crisis-era purchases of short-term corporate debt to thaw credit markets and U.S. Treasury Secretary Steven Mnuchin estimated that the economic measures President Donald Trump’s administration has proposed to deal with the effects of the coronavirus crisis would pump $1 trillion into the U.S. economy.

Canadian Prime Minister Justin Trudeau said his government would provide financial support to people during the coronavirus outbreak, while Ontario, Canada’s most populous province, declared a state of emergency.

The Toronto Stock Exchange Composite Index closed up 2.6% at 12,685.21, recovering from its lowest intraday level in four-years on Monday at 11,883.66. The index has fallen about 29% from its Feb. 28 peak.

Gold stocks led the rally, climbing more than 13%, while the heavily-weighted financial services sector was up nearly 2%.

The energy group fell more than 9%, with Saudi Arabia and Russia keeping up their battle for market share. The price of oil, one of Canada’s major exports, settled down 6.1% at $26.95 a barrel.

The U.S. dollar surged about 1.5% as companies and investors sought out the most liquid currency, with funding markets showing continued stress in sourcing the greenback.

The Bank of Canada reiterated it was ready to take further action after it slashed its key policy rate by 50 basis points to 0.75% in an emergency move on Friday.

Data on Tuesday showing a fifth consecutive monthly decline in Canadian manufacturing sales in January supported the case for further easing.

“It does indicate that the Bank of Canada likely needed to cut rates regardless of COVID-19,” said Royce Mendes, a senior economist at CIBC Capital Markets, referring to the respiratory illness caused by the coronavirus. “That suggests the bank should be trimming rates to the effective lower bound as soon as possible.”

The Canadian dollar was last down 1.5% at 1.4223 per U.S. dollar, or 70.31 U.S. cents, having hit its weakest intraday level since Jan. 2016 at 1.4278.

Canadian bond yields rose across a flatter yield curve, with the 2-year yield up 15.8 basis points at 0.625%. On Monday, the 2-year yield hit a record low at 0.163%.

Reporting by Fergal Smith; Editing by Paul Simao and Marguerita Choy