Stocks extend gains amid new rules on short selling

TORONTO – North American stock markets were higher Friday as a strong U.S. retail sales report raised hopes that a market bottom is near after three weeks of selloffs.

The S&P/TSX composite index added 1.31 points to 12,541.11, weighed down by a sharp decline in the gold sector as bullion prices stepped back. The TSX Venture Exchange was up 12.2 points to 1,806.

New York’s Dow Jones industrial average was up 101.72 points to 11,245.03. The Nasdaq composite index gained 14.32 points to 2,507 and the S&P 500 index was ahead 6.41 points to 1,179.05.

The Canadian dollar lost early lift, moving down 0.27 of a cent to 100.91 cents US.

Traders were pleased with data showing that U.S. retail sales rose 0.5 per cent last month, the best showing since a 0.8 per cent advance in March. And the government revised sales higher in the previous two months. That suggests the economy was not as weak as previously believed.

Investors also took in data showing the consumer sentiment index from the University of Michigan and Thompson Reuters tumbled to 54.9 during August, much lower than the 63.2 reading that had been expected.

Considering the intense volatility on stock markets resulting from fears about the European government debt crisis worsening, a growing feeling the U.S. is about to slip back into recession and the debate over raising the U.S. debt ceiling, some analysts thought that the reading could have been a lot worse.

“Is that a surprise?,” said David Rea Ltd. CEO John O’Connell.

“It’s amazing that people were that optimistic.”

But investors felt more positive about the financial sector after a short-selling ban on financial shares in four eurozone countries helped stabilize French banks.

Regulators in France, Italy, Spain and Belgium imposed temporary bans on short-selling of financial shares late Thursday, following sharp selloffs and temporary gains in French bank shares in particular that were blamed on false rumours.

The stocks of French banks have been hammered because of concerns they will be hit with massive losses from European sovereign debt they hold. One European nation after another has struggled with debt, with Spain and Italy the latest.

Stability in the French banking sector helped push the TSX financial sector up 0.6 per cent with Scotiabank (TSX:BNS) ahead 52 cents to C$54.29 while CIBC (TSX:CM) climbed 67 cents to $73.17.

Worries spread to France this past week, with the government trying to assure financial markets that it will not be downgraded from AAA. Standard & Poor’s rating agency stripped the United States of its top-notch AAA credit rating last Friday.

Eurozone debt worries, and what is perceived as a growing likelihood the U.S. will slip back into recession, have hammered markets since July 22.

Investors, looking for bargains amidst the carnage of three weeks of tumbles pushed the TSX up 341 points Thursday while the Dow industrials jumped 424 points.

The TSX has run up about 865 points over the last three sessions. But the main index is still down more than seven per cent just since July 22 and down almost 13 per cent from the highs of early March. Earlier in the week, it was down as much as almost 20 per cent.

“There’s a lot of areas that were down more, like energy stocks down 30 per cent,” added O’Connell.

“There’s some really good, I think, pretty compelling values.”

Oil prices added to Thursday’s gain of almost US$3, with the September contract on the New York Mercantile Exchange up 38 cents to US$86.10. The energy sector gained 0.24 per cent as Canadian Natural Resources (TSX:CNQ) lost 26 cents to $36.20 and Cenovus Energy (TSX:CVE) fell 41 cents to C$35.10.

The base metals sector was up 1.11 per cent with copper prices unchanged at US$4.01 a pound following a 12-cent runup on Thursday. First Quantum Minerals (TSX:FM) gained 63 cents to C$23.43 while Quadra FNX Mining (TSX:QUX) lost 44 cents to $12.93.

Taseko Mines Ltd. (TSX:TKO) shares fell 16 cents to $3.43 as the miner lost $1.1 million or a penny per share for the quarter ended June 30 compared with a profit of $44.8 million or 24 cents per share a year ago. Revenue totalled $48.3 million, down from $56.5 million.

The gold sector was the weakest group, down 2.3 per cent as the December bullion contract on the Nymex fell $14.20 to US$1,737.30. Barrick Gold (TSX:ABX) faded $1.03 to C$48.72 and Goldcorp Inc. (TSX:G) lost $1.75 to $48.97.

European markets were up sharply following the announcement of the short selling ban, with London’s’ FTSE 100 index up 2.34 per cent, Frankfurt’s DAX rose 3.1 per cent and the Paris CAC 40 gained 3.6 per cent.

Asian markets benefited from the strong showing on North American markets as Hong Kong’s Hang Seng added 0.1 per cent, Australia’s S&P/ASX 200 gained 0.8 per cent, while benchmarks in New Zealand and Singapore also rose.

But Japan’s Nikkei 225 stock average was lower, closing down 0.2 per cent.

Mainland Chinese shares, however, traded higher for a fourth day, as the Shanghai Composite Index gained 0.5 per cent while the Shenzhen Composite Index gained one per cent.

In other earnings news, Wenzel Downhole Tools Ltd. (TSX:WZL), an energy drilling equipment and services company, reports its net profits rose sharply to $2.1 million from $1.2 million a year ago. Revenues increased 40 per cent to $18.3 million and its shares jumped 10 cents to $2.10.

Units in packaged ice maker Arctic Glacier Income Fund (TSX:AG.UN) plunged 7.5 cents or 48 per cent to eight cents after it said it lost $16.1 million, or 41 cents per share in the second quarter, compared to a profit of $1.1 million, or three cents per share in the same period of 2010. Sales were $67.4 million versus $71.5 million.

Finning International Inc. (TSX:FTT) reported that second-quarter net income rose 129 per cent to $82 million from $36 million a year ago. Revenue increased to $1.49 billion from $1.07 billion on “exceptionally strong new equipment sales.” Shares in the company were up seven cents to $25.47.