Stocks are enjoying a modest rally on encouraging economic news in the U.S. Second quarter productivity was much better than expected, and jobless claims fell to a six-month low. As a result, the S&P/TSX composite index has gained 22 points at midday to 7,161.

Volume is average at 104 million shares, with the selling ahead of the buying by a 25:19 margin. Market breadth is positive though, as winners outnumber losers 47:43.

Energy is the strongest group today, up almost 0.8% on higher oil prices. Almost every other sector is up, but the gains are very modest. Some of the stronger areas are health care, financials and consumer discretionary stocks. Only industrials and diversifieds are down.

Air Canada is one of the leading trades today, down almost 4% in heavy volume after it reported a second quarter loss of $566 million.

There is also copious selling in some of the gold stocks today, as traders engage in some profit-taking with the smaller, more volatile names. Wheaton River, Eldorado Gold and Bema Gold are all down in heavy trading.

Bema has news out too, reporting a net loss of $4.1 million for its latest quarter, mainly due to higher general and administrative expenses.

On the flipside, there is strength in Placer Dome, Cambior and Pan American Silver.

There is also weakness in names such as Lionore Mining, Southwestern Resources, Laidlaw, Bombardier, Ballard Power and PetroKazakhstan.

Ivanhoe Mines is powering higher today, up almost 5% in heavy volume. Alcan is up again too.

Energy stocks are getting a boost led by EnCana and Nuvista Energy, and including Precision Drilling, Thunder Energy, Penn West Petroleum and Esprit Exploration.

Banks are generally higher, led by Royal Bank and TD Bank. CIBC is lower and Scotia is flat. Manulife is stronger, too.

There are gains in VSM MedTech, Fairfax Financial, CP Ships and Cinram International. Magna International Inc. is higher, too, after it reported a higher second-quarter profit and boosted its forecast for the year yesterday.

Brascan posted net income of US$63 million, compared with US$72 million in 2002.

Axcan Pharma reported that its net income this quarter was $6.3 million.

Hydrogenics Corp said it lost US$5.4 million in the second quarter.

In New York, the Dow Jones industrial average is up 42 points to 9,104. The S&P 500 is up three points to 970. Nasdaq composite index has added four points to 1,657.

The S&P/TSX Venture index is four points higher at 1,219. Volume is on the light side at 16.7 million shares. PetroFalcon Corp. is leading the trade, flat on 621,800 shares.