TSX pulls back from early gain

TORONTO—The Toronto stock market spun its wheels in late-morning trading today as oil and gold posted slight increases and the U.S. Federal Reserve announced further help for credit markets.
Toronto’s S&P/TSX composite index was up more than 250 points in the early going, then fell to a shallow loss of 53.87 points at 10,176.56.

That followed yesterday’s 573-point loss and 800-plus declines on two separate days last week. The TSX has lost about one-third of its value from its high in June.
The Canadian dollar, meanwhile, was down 0.44 cent to at 90.54 cents (U.S.) The currency has lost more than three cents against the American dollar since the start of October.
An announcement that the U.S. Federal Reserve will buy commercial paper—a short-term financing mechanism that many companies use to finance day-to-day operations—helped send New York indexes mostly higher before they, too, receded in late-morning trading.
The Dow Jones industrial average fell 63.44 points to 9,893.06 just before midday today after falling 370 points yesterday to below 10,000 for the first time in four years.
The market for commercial paper virtually has dried up, making it increasingly difficult and expensive for companies to raise money.
Today’s action makes the Fed a source of credit for non-financial businesses, in addition to its established role in providing liquidity to commercial banks.
But BMO Capital Markets economist Sal Guatieri said the announcement isn’t enough to restore investor confidence.
“It will allow businesses to get some of the short-term funding they need to continue normal day-to-day operations, but at the same time it’s just another in a long line of facilities and measures to unfreeze the credit markets, and money markets in particular,” Guatieri said.
“The main problem is there’s still a lack of trust amongst investors and lenders, and people are very reluctant to part with their cash at this moment.”
Investors also hope North American central banks will match a surprise rate cut by the Reserve Bank of Australia.
“I think global equity markets are screaming for a co-ordinated rate cut from the world’s central banks,” Guatieri noted.
“I think that’s the only thing that will help offset the collateral damage to the economy from the market tightening and financial conditions that has occurred just in the last couple of weeks.”
Market players will be carefully watching a speech (at 1:15 p.m. ET) by U.S. Federal Reserve chairman Ben Bernanke to see if he’ll “lay out the roadmap” for a rate cut, said Guatieri.
However, the overall view of the global economy is glum. Traders fear that government actions, including the Bush administration’s $700-billion (U.S.) bailout for American banks, can’t prevent a deepening financial crisis.