Financials lift TSX ahead of U.S. budget vote

TORONTO (Reuters) - Toronto’s main stock index closed slightly higher on Thursday as investors picked up beaten-down financial issues including banks, helping to offset losses in energy and materials shares.

But markets were volatile ahead of a U.S. House vote later on Thursday on a controversial Republican bill to cut the U.S. deficit and raise the debt limit. U.S. House of Representatives Speaker John Boehner is pushing to pass a bill in the Republican-majority House, while the Democratic-controlled Senate is crafting a competing bill.

“It’s some hope on a settlement for the U.S. budget deficit,” said Gavin Graham president of Graham Investment Strategy, comparing the session’s gains with the sharp sell-off on Wednesday, caused by fears that a deal may not get done by August 2.

“Also, the fact that Moody’s thinks Canada, unlike the U.S. really is Aaa. That obviously helped.”

Moody’s rating agency reaffirmed its Aaa rating on Canada’s sovereign debt on Thursday, citing the nation’s economic resiliency, very high government financial strength and a low susceptibility to event risk.

Heavily weighted financials led the gains for Canada’s biggest stock exchange, rising 0.4 percent following a steep sell-off over recent weeks.

Royal Bank of Canada RY.TO was the most influential stock supporting the index, adding 1.4 percent to trade at C$52.05. Canadian Imperial Bank of Commerce CM.TO, up 1.18 percent at C$73.61 and Manulife Financial MFC.TO, up 1.25 to C$15.34, were also among the top gainers.

"We've reached some oversold conditions, mostly on the financial side of the equation," said Francis Campeau, a broker at MF Global Canada. Earlier in the session, the sector .SPTTFS hit a 2011 low.

The Toronto Stock Exchange's S&P/TSX composite index .GSPTSE closed the session up 15.11 points, or 0.12 percent, at 13,047.78. Seven of the 10 main index groups were higher.

Canadian Pacific Railway CP.TO also helped lead the market higher. Its shares jumped 4.8 percent to C$60.81 after RBC raised its rating to "top pick". On Wednesday the railway operator reported a drop in quarterly profit due to flooding, but its chief executive said it is positioned for earnings growth in the second half of the year.

Potash Corp rose 0.3 percent to C$56.20 after the world’s largest fertilizer maker reported a 75 percent increase in its quarterly profit on the back of surging grain prices that lifted demand for its crop nutrients. [nN1E76R08V]

“Potash just blew the doors off and reinforced firstly their defense last year to the BHP takeover that it was undervaluing the company,” said Graham.

But a slew of less positive results by gold and energy producers on Thursday contributed to a slide in the materials and energy sectors.

Suncor Energy SU.TO was the most influential decliner. Shares of the oil and gas producer fell 2.8 percent to C$37.09 after it reported a slim 4 percent rise in second-quarter profit and said it did not anticipate further asset sales in 2011.

Goldcorp Inc G.TO also dragged on the index, down 3.2 percent to C$46.71. The gold producer said on Wednesday its second-quarter operating profit more than doubled but the company cut the midpoint of its expected 2011 gold production range by 6.5 percent as operational issues, project delays, and forest fires curtailed output in Mexico, Canada and the Dominican Republic.

Barrick Gold Corp ABX.TO fell 0.3 percent to C$45.87, after the world's largest gold miner reported a 35 percent increase in quarterly profit but warned of sizable increases in capital expenditures.

Additional reporting by Claire Sibonney; Editing by Jeffrey Hodgson