Canadian stocks climbed on Friday on optimism that European Union leaders were moving to address the region's debt crisis by agreeing on measures aimed at enforcing stricter budget discipline among member nations. Energy shares on the Toronto Stock Exchange rose 1.3 percent as oil prices jumped more than 1 percent. Canadian Natural Resources was up 1.6 percent at C$37.66, while Cenovus Energy rose 2.3 percent to C$34.41. Suncor Energy climbed 1.1 percent to C$29.85.
Financial shares rose 0.8 percent with Royal Bank of Canada up 1.4 percent at C$49.47, and Toronto-Dominion Bank up 0.6 percent at C$73.27. "There's only one short answer to the market's gyrations in recent weeks and recent months, and that is Europe. Sentiment is positive on developments out of Europe," said Elvis Picardo, strategist and vice president of research at Global Securities in Vancouver.
The Toronto market's S&P/TSX composite index finished the day up 82.96 points, or 0.69 percent, at 12,034.75. Eight of its 10 main sectors were higher. The index was down 0.3 percent on the week. The blue chip S&P/TSX 60 index closed 4.8 points, or 0.71 percent, higher at 682.97.
Led by Germany and France, 26 of the 27 nations in the European Union agreed after a two-day summit to pursue tighter integration with stricter budget discipline in the eurozone. Britain said it could not accept the proposed EU treaty amendments. "The thinking is a closer fiscal union will enable the stronger nations to paper over the deficiencies of the weaker nations so that might help the EU as a whole. But it's just conjecture at this point," Picardo said.
Markets around the world cautiously embraced the deal, and Picardo said that optimism was reflected by the rise in cyclical or high beta groups, such as energy, financial and materials shares, on the TSX index. Defensive groups such as telecoms and utilities, which tend to attract money when sentiment is weak, closed lower on the day. The market was also cheered by news that China's central bank plans to create a new vehicle to manage investment funds, worth a total of $300 billion, part of which will be focused on investments in Europe.
Carlos Leitao, chief economist at Laurentian Bank Securities in Montreal, however, said he doubted the rally would last for long. He said the outcome of the two-day EU summit left markets still uncertain on whether more decisive action was yet to come and on how quickly measures would be implemented.
"The steps taken to address the fiscal imbalances are important. But this is going to take a long time and I think markets are a little bit too enthusiastic over the ability of the Europeans to put all of this in place." Picardo said he expects the market to trade sideways for the next several weeks and perhaps fall as low as 10,900 by end of the first half of 2012. "It's a line of very strong support for the TSX and you would expect when sentiment turns around you'd expect the TSX to bounce off that level," he said.