TSX slightly higher, Federal Reserve signals economy not ready for stimulus cut

TORONTO -- The Toronto stock market closed slightly higher Wednesday as the Federal Reserve indicated it won't be cutting back on its key stimulus just yet.

The U.S. central bank said at the conclusion of its two-day interest rate meeting that the US$85 billion of monthly bond purchases will continue, adding that it wants more evidence of sustained economic growth before it starts to taper.

The S&P/TSX composite index gained 14.72 points to 13,455.33, led by rising gold stocks.

The Canadian dollar was down 0.13 of a cent to 95.38 cents US as the greenback strengthened after the Fed announcement.

U.S. indexes turned lower after the announcement as the Dow Jones industrials dropped 61.59 points to 15,618.76. But the blue chip index is still up about 19 per cent year to date and traders have said it is ripe for a moderate retracement.

The Nasdaq fell 21.72 points to 3,930.62 and the S&P 500 index lost 8.64 points to 1,763.31.

The decision to carry on with the asset purchases is a reversal from the last meeting six weeks ago when it was generally thought the central bank judged the economy was strong enough to start cutting back on stimulus that has kept long-term rates low and underpinned a strong rally on many stock markets.

But since then, a 16-day partial government shutdown shaved an estimated US$25 billion from economic growth this quarter and a batch of tepid economic data pointed to a still-subpar economy, an indication that the Fed will be content to delay tapering until 2014.

"That seems to be the consensus," said Chris King, a portfolio manager at Morgan, Meighen and Associates.

"But I think they probably need to start moving a little sooner, given that this market is being giddy. A smart Fed governor will realize that the risk of having an over-extended stock market is worse than undercutting it. So I wonder if they don't do something a little bit before that."

The TSX gold sector led advancers, up about two per cent while December bullion gained $8.60 to US$1,354.10 an ounce. Barrick Gold Corp. (TSX:ABX) gained 84 cents to C$21.55 and Iamgold (TSX:IMG) improved by nine cents to $5.63.

The base metals segment was up 0.55 per cent even as December copper jumped five cents to US$3.33 a pound. First Quantum Minerals (TSX:FM) rose 56 cents to C$19.33 ahead of the release of earnings after the close.

Energy stocks were the biggest weight, down 0.45 per cent as December crude on the New York Mercantile Exchange dropped $1.43 to US$96.77 a barrel amid data showing U.S. inventories rose by a greater than expected 4.1 million barrels last week. Canadian Natural Resources (TSX:CNQ) fell 32 cents to C$33.29.

Elsewhere on the earnings front, Facebook shares jumped 15 per cent in after-hours trading after the social networking site blew past expectations. Earnings per share ex-items were 25 cents a share, six cents better than forecast while quarterly revenue surged 60 per cent from a year ago to $2.02 billion against estimates of $1.911 billion.

General Motors earned US$698 million in the quarter, or 45 cents per share. That compares with US$1.48 billion, or 89 cents per share, a year ago. Ex-items, it made 96 cents per share, two cents better than expected.

Revenue rose four per cent to $39 billion, just short of Wall Street's estimate and its shares ran up $1.17 or 3.24 per cent to US$37.23.

Maple Leaf Foods Inc. (TSX:MFI) shed early losses to move ahead 29 cents to C$15.59 as it said overall third-quarter profit was down sharply, falling to $15.5 million or nine cents per share from $26 million or 16 cents per diluted share in the third quarter of 2012. The company cited tough market conditions and unusual expenses related to an ongoing reorganization.

In other corporate news, Lululemon Athletica Inc. (Nasdaq:LULU) named Tara Poseley as its new chief product officer. The appointment comes just over a month after Lululemon lowered its 2013 profit and revenue outlook as efforts to improve the quality of its black Luon yoga pants delayed the delivery of fall products to stores. Its shares backed off $2.58 to US$70.67.

One of the high flyers on the TSX was Air Canada with its B shares soaring to a fresh five-year high in heavy trading, extending an upward trend that has seen the airline's stock value more than triple in the past year. The shares (TSX:AC.B) jumped 22 cents or four per cent to $5.72 after running as high as $5.80, a level that hasn't been surpassed since they opened at $5.88 on Aug. 15, 2008.