TSX climbs 4.7 per cent as global credit concerns ease

The world's major equity markets posted healthy gains this week as concerns over jittery credit markets eased.

Markets in Canada, the United States and Europe began rallying August 17 after the U.S. Federal Reserve (the “Fed”) slashed its discount rate, the rate at which it lends money to commercial banks, in an effort to put more cash in the hands of companies in need of short-term financing. The Fed also pledged to “act as needed” in order to contain credit market losses.

The Fed intervened again Tuesday as the Federal Reserve Bank of New York lowered the fee it charges bond dealers to borrow U.S. Treasury notes to a record low. The Fed also increased the size of its weekly auction of four-week Treasury bills.

The Fed's determination to soothe credit markets helped lift Canada's S&P/TSX composite index 4.7 per cent over the week ended August 23.

Canada's materials producers rose 6.8 per cent on the week as investors speculated global growth, and demand for resources, will remain strong. News of BHP Billiton's eighth consecutive record profit also boosted the sector. BHP, the world's largest miner, this week reported net income of US$7.2 billion for the six-month period ended June 30, up from US$6.1 billion a year earlier At the same time, the company said it may boost its investment in new projects to US$8 billion a year moving forward -- the company spent US$5 billion on growth projects in each of the last three years.

It was Canada's Information Technology sector, however, that led the benchmark higher. BlackBerry maker Research In Motion Ltd. led the sector 7.1 per cent higher on the week after analysts raised their growth projections for the company. Research In Motion shares surged 20.1 per cent on the week.

In the United States, the S&P 500 advanced 3.6 per cent over the week ended August 23 as credit concerns eased and takeover activity, which has been absent in recent weeks, re-emerged.

News of Bank of America's US$2 billion investment in Countrywide Financial Corp., the largest mortgage company in the United States, put credit markets further at ease. Last week, difficulty obtaining credit forced the distressed mortgage lender, which services the mortgages of one in seven American households, to access an US$11.5 billion line of credit. Bank of America's confidence in Countrywide drove the mortgage lender's shares 16.2 per cent on the week, leading the S&P 500's Financial sector 3.7 per cent higher.

Meanwhile, news of a possible merger between online broker TD Ameritrade and E*Trade Financial highlighted a week of developments on the merger and acquisition front. E*Trade shares rose 13.2 per cent on the week after the Wall Street Journal reported the companies have entered into merger talks. Canada's Toronto-Dominion Bank owns 40 per cent of TD Ameritrade.

Materials producers led the S&P 500's advance, rising 6.7 per cent, while the benchmark's Telecommunications, Industrials, Utilities and Energy sectors all rose more than 4 per cent.

In Europe, easing credit concerns drove the Dow Jones Stoxx 600 Index 4.8 per cent higher over the week ended August 23.

Like the U.S. Federal Reserve, the European Central Bank (ECB) continued to add liquidity to money markets this week. Tuesday the Bank said it would lend US$54 billion to commercial banks for three-month periods. Still, the Bank signaled it has no intention of deviating from its inflation-fighting stance. The ECB is widely expected to raise its benchmark lending rate at its September meeting.

Asian equities staged the biggest turnaround in global markets this week. After falling 3.5 per cent August 17, the Morgan Stanley Capital International Asia-Pacific Index -- a barometer of stocks throughout the region – rallied over the balance of the week to close 4.2 per cent higher. At the same time, Japan's Nikkei 225 Stock Average began the week by plunging 5.4 per cent before beginning its climb into positive territory. The Nikkei rose 1.2 per cent over the week ended August 23.

Also of note, China's Shanghai Composite index continued establishing new, all-time highs this week. Strong demand from domestic Chinese investors, who have a high savings rate and rising disposable income due to economic prosperity, has driven the index 91 per cent higher thus far this year and 215 per cent over the last twelve months.

Finally, the yield on ten-year U.S. Treasuries edged higher this week as investors pared bets the U.S. Federal Reserve will cut its benchmark lending rate ahead of its next scheduled meeting, set for September 18. Yields, which move inversely to prices, rose 2 basis points on the week.