TORONTO - Relieved investors sent stock markets higher Wednesday afternoon after the U.S. Federal Reserve decided to chop another half-point from its key funds rate to avert recession in the U.S.
The move by the U.S. central bank added to last week's surprise three quarters of a point cut and took the key rate down to three per cent.
The Fed signalled that further rate cuts were possible and that "financial markets remain under considerable stress.''
The move was particularly welcome as a report released earlier in the day showed the American economy's decline picked up speed in 2007's fourth quarter.
In Toronto, the S&P/TSX composite index moved up 35.49 points to 13,081.92.
The TSX Venture Exchange declined 7.86 points to 2,544.52 while the Canadian dollar moved up 0.8 cent to 100.85 cents US as the interest rate spread between the Bank of Canada and the Fed widened to a full percentage point.
On Wall Street, the Dow Jones industrials ran up 87.55 points to 12,567.85.
The Nasdaq composite was ahead 17.58 points to 2,375.64 after struggling Internet company Yahoo Inc. announced a decline in quarterly profit and unveiled a sales outlook for this year that fell below analysts' expectations. It will also cut 1,000 jobs.
Yahoo shares were down almost nine per cent at US$18.99.
The S&P 500 index points to 1,3 after data showed the U.S. economy barely maintaining altitude in the fourth quarter, growing by just 0.6 per cent against a background of tighter credit and cautious spending amid fears of a recession.
The GDP showing was way below the 1.2 per cent reading that economists had expected.
Also in the fourth quarter, consumer spending slowed to a pace of two per cent, down from 2.8 per cent growth in the prior quarter.
A gauge of inflation linked to the GDP report showed that "core'' prices -- excluding food and energy -- grew at a rate of 2.7 per cent in the fourth quarter, up from two per cent in the prior quarter.
Two days before the release of the January non-farm payrolls report, the ADP national employment report showed a 130,000 surge in U.S. private-sector payrolls in January, much higher than the 40,000 that had been expected.
The report doesn't include government employment growth, which BMO Nesbitt Burns economist Jennifer Lee said "translates into a non-farm payroll gain of about 150,000, a figure that is more than a little unbelievable and hard to digest.''
The TSX energy sector was up 1.07 per cent even as oil prices held onto a minor gain after the U.S. Department of Energy reported larger than expected increases in crude oil and gasoline inventories last week.
The March crude oil contract on the New York Mercantile Exchange moved up 31 cents to US$91.95 a barrel.
EnCana Corp. (TSX:ECA) gained $1.07 to $66.07.
Shares in Suncor Energy Inc. (TSX:SU) were $3.09 higher at C$94.19 after the company announced approval of a $20.6-billion expansion project in its Alberta oilsands operation.
Investors also took in news of more big writedowns related to securities backed by U.S. mortgages.
Swiss bank UBS said it will have an US$11.4-billion fourth-quarter loss, largely due to subprime problems. Analysts had expected a much smaller shortfall. French bank BNP Paris said its quarterly profit will decline by 40 per cent from year-earlier levels.
The Toronto financial sector was off 0.1 per cent as Bank of Montreal (TSX:BMO) fell 85 cents to $56.85.
Shares in AGF Management Ltd. (TSX:AGF:B) were down 81 cents to $23.32 as Canada's ninth-largest mutual fund operator boosted its dividend by 25 per cent Wednesday while announcing a 59 per cent rise in annual profit on a 28.5 per cent revenue gain.
The gold sector was ahead 0.6 per cent as the February bullion contract in New York fell $4.50 to US$920.60 an ounce.
Shares in Iamgold Corp. (TSX:IMG) were 46 cents lower at $9.01 after the company forecast a five per cent production decline in 2008, to 920,000 ounces of gold. It also said US$87.3 million has been approved for exploration and development project spending.
Skye Resources Inc. (TSX:SKR) shares dropped 60 cents to $5.60 after the company said it is deferring its financing plans for the Fenix nickel project in Guatemala, citing "turmoil'' in the credit market. The Vancouver-based company spent about US$23 million on the project over a nine-month period last year.
Altria Group said Wednesday it will spin off its international tobacco business -- Lausanne, Switzerland-based Philip Morris International -- on March 28, freeing it to pursue cigarette sales more aggressively outside the U.S. by separating it from its American counterpart.
