Stocks surge as buyers descend on beaten down shares

A man checks the stock prices on an electronic stock board of a securities firm in Tokyo, Aug. 19, 2014 file photo (AP / Eugene Hoshiko)

TORONTO -- Bargain hunters descended on the Toronto stock market for a second day Friday as traders bought up stocks that have been badly beaten down during the course of a series of market jolts and wonder if the U.S. Federal Reserve might extend a key stimulus program.

The S&P/TSX composite index ran ahead 212.88 points to 14,265.85 with the TSX on track to register a small weekly gain after six weeks of punishing losses that, at its worst mid-week, saw the Toronto market down 12 per cent from its recent highs of early September.

"You often see these reactionary bounces back up," said Chris King, a portfolio manager at Morgan Meighen and Associates.

It's too soon to call an end to the retracement seen on the TSX and New York markets -- something King said was necessary.

"Equity markets valuations were becoming a bit stretched for core earnings. And core earnings I think are still intact but you don't want equity markets to be too far away from them on a valuation basis and I think this is all good," he said. "We're very happy to see this correction finally happen."

The Canadian dollar inched up 0.04 of a cent to 88.94 cents US amid data showing Canada's cost of living was up 0.2 per cent in September on a seasonally adjusted basis after increasing 0.1 per cent in August.

U.S. indexes also registered solid gains as traders reacted to comments by St. Louis Federal Reserve Bank president James Bullard that the Fed should consider delaying the end of its massive bond purchase program, given declining inflation expectations.

The quantitative easing program is set to finish at the end of this month, and has been one of the reasons for the recent volatility on markets that has slashed the value of stocks across the board. The program has been credited with keeping long-term rates low and fuelling a strong rally on stock markets over the last few years.

Positive earnings news from General Electric and Morgan Stanley and rising consumer confidence also helped push the Dow Jones industrials up 257.84 points to 16,375.08. The Nasdaq ran ahead 68.17 points to 4,285.56 and the S&P 500 index advanced 30.93 points to 1,893.69 as the University of Michigan's consumer confidence index for October came in at 86.4, beating expectations for a read of 84.

U.S. markets have so far avoided formally falling into correction, defined as a drop of 10 per cent from recent highs, but that could change. Losses Thursday left the Dow down almost seven per cent since Sept. 19 while the S&P 500 has fallen almost eight per cent. Both indexes had been at or close to record levels and a correction has been widely expected since there hadn't been a retracement in three years.

Beyond the end of QE, traders have also been unnerved over a recent run of data pointing to economic weakness practically everywhere except the United States.

The TSX is still down about nine per cent from its September highs.

Most TSX sectors were positive as traders moved into areas that have been hard hit as the market moved into correction territory this week, particularly the energy sector. The component is still down about 15 per cent for the last month as oil prices fell from the US$95 a barrel level to bounce off the $80 mark on Thursday.

The energy sector also led advancers Friday, up three per cent while oil prices in New York advanced 98 cents to US$83.68 a barrel.

Financials also helped lift the TSX with a 1.8 per cent gain in the sector.

Rising rail stocks helped push the industrials sector ahead 2.5 per cent.

December copper was up two cents at US$3 a pound and the base metals sector gained 1.6 per cent.

The gold sector was the weak link, down about 2.65 per cent as December bullion faded $7.20 to US$1,234 an ounce.