Stock markets jump on Suncor-PetroCan merger, U.S. bank-aid plan

By Malcolm Morrison, The Canadian Press

TORONTO - New life was breathed into the March rally on stock markets Monday by a major deal in the Canadian energy sector and another effort to revive American banks.

Toronto's S&P/TSX composite index surged 367.3 points to 8,873.6 late in the morning after Suncor Energy Inc. (TSX: SU.TO) and Petro-Canada (TSX: PCA.TO) announced an all-stock combination into a company valued at $43.3 billion.

"At times like these where oil prices are low, and companies are looking for consolidation to take advantage of low prices, I think frequently you see stock deals because that way neither company is leveraging their balance sheet," observed Kate Warne, Canadian market specialist at Edward Jones in St. Louis.

"It's still difficult to get financing in the marketplace and you might have seen some cash component if the credit markets were easier to deal with right now."

The new enterprise is to operate under the Suncor name with existing Petro-Canada shareholders owning 40 per cent. Suncor shares were ahead 71 cents to $31.61 while Petro-Canada soared $8.03 or 27 per cent to $37.68.

The TSX Venture Exchange rose 5.05 points to 906.85.

Monday morning's market advance followed a 184-point slide Friday that broke an eight-day surge on the TSX. The main index ran ahead 16 per cent since March 9, led by a 30 per cent rise in the financial sector.

The Canadian dollar gained 0.61 cent to 81.29 cents US as the American dollar weakened on worries about inflation resulting from the taxpayer-supported plan to remove up to US$1 trillion in bad loans from the balance sheets of hard-pressed American banks.

Statistics Canada's gauge of future economic activity fell 1.1 per cent in February after a 0.9 per cent decrease in January.

New York's Dow Jones industrial average gained 280 points to 7,558.4. Wall Street's blue-chip index is up more than 14 per cent from the March 9 trough.

The Nasdaq composite index jumped 52.16 points to 1,509.43. The S&P 500 index moved up 30.15 points to 798.7 after the Treasury Department unveiled its plan to revive lending.

It would rely on the government's US$700-billion financial rescue fund, along with cheap loans from the Federal Reserve and the Federal Deposit Insurance Corp. This money would support private investors, including hedge funds, in buying toxic assets from banks at marked-down prices. The taxpayers will accept the bulk of the risk if those assets fall further.

Treasury Secretary Timothy Geithner pleaded for patience, saying work to rehabilitate the financial industry has to go forward despite "deep anger and outrage" over bad lending and investment practices.

"The actions that we're getting from a policy standpoint are very helpful in removing the sand from the gears," said Alan Gayle, senior investment strategist at RidgeWorth Investments in New York.

"That is going to be good for the financials."

The Toronto financial sector rose sharply on the U.S. bank-aid plan, gaining six per cent as Royal Bank (TSX: RY.TO) added $1.67 to $36.92 and TD Bank (TSX: TD.TO) moved up $2.65 to $43.91.

The TSX energy sector moved ahead just over seven per cent as the May crude contract on the New York Mercantile Exchange moved up $1.39 to US$53.46 a barrel. Advancers included EnCana Corp. (TSX: ECA.TO), up $3.93 to $55.28, and Canadian Natural Resources (TSX: CNQ.TO), up $4.10 to $52.77.

The base metals sector rose 7.7 per cent. Teck Cominco Ltd. (TSX: TCK-B.TO) moved ahead 60 cents to $6.48 and Equinox Minerals (TSX: EQN.TO) improved 18 cents to $1.88.

The gold sector was the only declining group, off 0.5 per cent as the April bullion contract in New York moved down $7.40 to US$948.80 an ounce. Barrick Gold Corp. (TSX: ABX.TO) climbed 56 cents to $40.81.

There was a bit of good news from the American housing sector. The National Association of Realtors said sales of existing homes grew 5.1 per cent in February compared with January. It was the largest sales jump since July 2003, against expectations of a decline.

Hopes for the U.S. bank support and other government moves sent overseas stock markets higher. Tokyo's Nikkei average advanced 3.4 per cent to a six-week high after Japan's finance minister said aggressive public spending to the tune 20 trillion yen (US$208 billion) might be needed to boost the world's second-largest economy.

Hong Kong's Hang Seng jumped 4.8 per cent.

Britain's FTSE 100 rose 3.2 per cent, while Germany's DAX index and France's CAC-40 each added 2.3 per cent.