Rate Cuts Boost Share Prices
May 04, 2011
The Toronto Stock Exchange's 300 Composite Index rose 15.02 to 5182.10, after rising 16.19 Wednesday. Advancing issues led decliners, 493 to 390. Volume totaled 96.1 million shares valued at 1.28 billion Canadian dollars, up from Wednesday's 91.3 million shares valued at C$1.22 billion. Overall, eight of the TSE's 14 stock groups rose. However, Toronto broke from its recent pattern and underperformed New York, where the Dow Jones Industrial Average rose 43.65 to 5733.47. In general, Bay Street investors took their buying cue from a 25-basis-point cut in the central bank rate to a range between 3.75% and 4.25%, and the subsequent drop in the prime rates charged by major chartered banks. ``Rate cuts tend to be good for all stocks, by making it less expensive for companies to borrow money,'' said Solberg Brady of Maison Placements Canada Inc.. Traditionally, interest-sensitive stocks, such as the banks, are the first to react to lower rates because their dividend yields are measured against bond yields. However, Toronto's bank group posted a relatively modest gain of 0.31%, reflecting the realization that, in the current interest-rate environment, investors don't see rates dropping much lower from current levels, Brady says. In the banking group, Royal Bank of Canada rose 0.10 to 34.55. Over the longer term, Brady says stocks of biotechnology and other concerns that often rely on raising cash to fuel their operations could be poised to benefit from Thursday's decrease in interest rates. The TSE's heavily weighted gold group led advancing sectors, rising 1.12%, as Placer Dome rose 0.35 to 34.10. On the Mercantile Exchange, the gold price rose 90 U.S. cents to US$423 an ounce.
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