TORONTO - The Toronto stock market closed in positive territory Wednesday as lower inflation data from China raised hopes for higher growth in the Asian economy and pushed oil prices and commodity stocks higher.
But gains were spotty outside those areas and the S&P/TSX composite index came down from an early lead of more than 100 points to close up 50.12 points at 10,597.98.
The showing followed two flat sessions as investors looked for reasons to extend the three-month-old spring rally.
They thought they found that in data showing that prices in China fell in May for a fourth straight month, moderating the threat of inflation. Analysts say this gives Chinese authorities the room to provide further stimulus to China's economy if they believe it is warranted without fear of inflation.
The news had also raised hopes that other figures about industrial production and retail sales, due later this week, will be similarly upbeat, providing more evidence of growing Chinese demand for raw materials, energy and finished goods that can help lift other economies in Asia and around the world.
Rising confidence in Asian economies has been partly responsible for the solid three-month-old rally on markets that has pushed the TSX up about 35 per cent.
"I think we can take consolation in that things seem to be moving ahead a little bit, but are they really?," said Adrian Mastracci, portfolio manager at KCM Wealth Management in Vancouver.
"What what about the interest rates, what about the jobs? Oil at those prices is going to put a monkey wrench in the works in this recovery in the short term."
On energy markets, the July crude contract in New York climbed $1.32 to US$71.33 a barrel after rising as high as US$71.65, a high for the year, and sent the Toronto energy sector up 1.4 per cent.
On the TSX, EnCana Corp. (TSX:ECA) gained $1.54 to $62.28.
The TSX Venture Exchange lost 1.57 points to 1,142.39 while the Canadian dollar declined four tenths of a cent to 90.25 cents US.
New York markets also started off strong but closed lower following a weak auction of U.S. Treasury notes that raised concerns about inflation and higher interest rates.
The Dow Jones industrial average lost 24.04 points to 8,739.02. The Nasdaq composite index lost 7.05 points to 1,853.08 and the S&P 500 index was off 3.28 points to 939.15.
Concerns of rising rates came to the fore again Wednesday afternoon after the U.S. government sold US$19 billion in 10-year Treasury notes -- but the government had to lure buyers with a higher yield than the market anticipated.
The 10-year note's yield, which is closely tied to interest rates on mortgages and other consumer loans, jumped to 3.99 per cent, a new high for the year, before settling down to 3.95 per cent later in the afternoon.
Investors are concerned the government's debt load will become untenable, leading to higher inflation and soaring interest rates
Markets seemed to get little lift from the Federal Reserve's latest snapshot of economic conditions.
The Fed's so-called Beige Book said the economy's sharp downhill slide eased in the late spring and hopes for future business activity improved, suggesting that the worst of the recession has passed.
Investors also took in trade data from Canada and the U.S.
Canada posted a small trade deficit of $179 million in April after a surplus of $1 billion in March.
Also, the U.S. Commerce Department reported the U.S. trade deficit edged higher in April as oil prices rose, up 2.2 per cent to US$29.2 billion.
The TSX base metals sector was up 3.6 per cent as the price of copper in New York inched up about an eighth of a cent to US$2.367 a pound after surging 11.25 cents on Tuesday.
Teck Resources (TSX:TCK.B) moved ahead 55 cents to $20.15 and Ivanhoe Mines Corp. (TSX:IVN) jumped 38 cents to $7.09.
The August bullion contract in New York was down $4.10 to US$950.60 an ounce and the gold sector was off 0.5 per cent.
In the gold sector, Yamana Gold Inc. (TSX:YRI) shares dropped after the company signed a deal to sell three of its mines to Aura Minerals Inc. (TSX:ORA) in a deal worth about US$200 million in stock and cash. Yamana shares declined 42 cents to $11.24 while Aura shares surged eight cents to 52 cents.
The financial sector was flat but Manulife Financial (TSX:MFC) rose 26 cents to $24.14.
In other corporate news, Chrysler LLC took a step toward exiting bankruptcy protection after the U.S. Supreme Court lifted a temporary stay halting a sale of the majority of its assets to Italian automaker Fiat Group SpA. The deal is expected to close Wednesday.
Meanwhile, auto parts supplier Martinrea International Inc. (TSX:MRE) says General Motors (NYSE:GM) and Chrysler are paying the company for its products in full and on time. The company's executive chairman, Rob Wildeboer, says the federal and Ontario governments have "done a particularly good job in ensuring a strong future for the Canadian auto sector." Its shares were down 15 cents to $5.25.
Connacher Oil and Gas Ltd. (TSX:CLL) shares were off a penny to $1.05 after it said it plans to make a notes offering worth US$150 million that should allow it to restart construction at its Algar project in the Alberta oilsands.