North American stock markets staged big rallies Wednesday as investors welcomed a signal that U.S. interest rates may be cut.

Federal Reserve vice chairman Donald Kohn told the Council on Foreign Relations that recent financial market turbulence could make it more difficult for businesses and consumers to get loans.

Investors took Kohn’s comments as sign that the U.S. Federal Reserve will cut interest rates at its next meeting.

In Toronto, the S&P/TSX composite index closed up 263.03 points, or 1.97%, at 13,632.15 with all of the TSX’s 10 main groups higher.

The heavily-weighted financials group was up 3.2%. CIBC shares were up $2.16 to $88.52; BMO jumped $2.80 to $60.75; National Bank soared $4.33 to $54.25.

The materials sector climbed 2.8% helped by a jump in Potash Corp of Saskatchewan Inc (after the stock won an analyst upgrade. Potash was up $5.62 at $115.32.

Gold futures fell US$9.10 to US$804.90 an ounce.

The industrials sector gained 2.2% as Bombardier said it plans to increase production of its regional jets and reported a rise in quarterly profit.

The plane and train maker was up 28¢, or 5.1%, at $5.76.

The tech sector moved up 1.3% with the help of BlackBerry maker Research In Motion, which finished up $4.76, or 4.1%, at $119.76.

The energy sector was flat as crude oil futures fell sharply. Oil futures tumbled more than $3 for the second straight day to close at US$90.62 a barrel following a smaller-than-expected drop in U.S. crude inventories.

The junior S&P/TSX Venture composite index rose 10.73 points, or 0.39%, to 2,732.01.

The Canadian dollar gained almost a full cent to US$1.0141.

In New York, the Dow Jones industrial average saw its biggest percentage gain in four and a half years following the Fed vice chairman’s comments.

The Dow was up 331.01 points, or 2.55%, at 13,289.45. The S&P 500 was up 40.79 points, or 2.86%, at 1,469.02. The Nasdaq composite index
was up 82.11 points, or 3.18%, at 2,662.91.

Disappointing data on U.S. housing failed to dampen the enthusiasm. New figures out Wednesday showed that sales of existing U.S. homes fell for the eighth consecutive month in October.