The Canadian Press

The Toronto stock market surged to its highest close of the year Tuesday as worries about Dubai’s credit problems receded while a trio of American economic reports reinforced the impression a rebound is underway.

The S&P/TSX composite index jumped 260.12 points to 11,707.32 — its highest close since October 2008 — led by rising commodity stocks as a weaker U.S. dollar helped boost oil and metals.

The gain left the TSX up 30.25% year to date.

Markets were sent reeling late last week after Dubai World said it wanted to postpone payments on its approximately US$60 billion of debt for at least six months. But investors felt better about the Dubai issue after the Persian Gulf emirate’s government-owned conglomerate, Dubai World, said that it had begun “constructive” discussions with its creditors over US$26 billion of its debt.

“It does seem contained,” said Ian Nakamoto, director of research at MacDougall, MacDougall and MacTier.

“The most important thing is that there is no contagion effect and what I mean by that is that investors don’t say: ‘What else is out there; is it going to be a domino effect?’ And so far, it doesn’t look that way.”

A weaker U.S. currency pushed the Canadian dollar up 0.81 cents to 95.54 cents US.

The move up also came amid a comment from a senior Russian central bank official that the country will buy Canadian dollars in the next few months in a bid to diversify its currency reserves. Russia had previously mentioned plans to buy Canadian and Australian dollars in the near term, but had not specified when that would happen.

The TSX energy sector was 2.17% higher as positive economic data from China and U.S. dollar weakness sent the January crude contract on the New York Mercantile Exchange up $1.09 to US$78.37 a barrel. A Chinese industry group released a survey showing manufacturing activity expanded in November for a ninth straight month. EnCana Corp. (TSX:ECA) gained $1.06 to C$57.63 while Suncor Inc. (TSX:SU) climbed $1.30 to $39.20.

The December bullion contract on the Nymex climbed $18 to a record high close of US$1,199.10 an ounce, taking the gold sector up 5.28%. Goldcorp Inc. (TSX:G) advanced $2.83 to C$46.90.

Shares in Barrick Gold Corp. (TSX:ABX) climbed $3.34 to $48.20 after the company said it had eliminated all of its gold hedges ahead of schedule. The hedges had limited Barrick’s ability to take advantage of rising gold prices, although they also were designed to protect the company from lower prices.

The base metals sector ran up 2.6% as the December copper contract added 5.5 cents to US$3.20 a pound. Teck Resources (TSX:TCK.B) was up 52 cents to C$37.01 while Equinox Minerals (TSX:EQN) was up 30 cents at $4.20.

Richard Ross, global technical strategist at Auerbach Grayson in New York, said the drop in the U.S. dollar and the jump in riskier assets like commodities signals investors aren’t willing to give up on the market’s surge even if they have concerns it might be overdone.

“It speaks to that sort of bullish undercurrent,” he said. “Whether it’s misplaced optimism, that’s another question.”

The industrials sector, up 1.83%, also lifted the TSX, with Bombardier Inc. (TSX:BBD.B) ahead 12 cents to $4.60.

Shares in Canadian Pacific Railway (TSX:CP) rose 93 cents to $51.90 after Canada’s second-largest railway company said it’s making a $500-million voluntary payment to its pension plan.

The financials sector advanced 1.29% ahead of earnings reports from most of the big banks later in the week. National Bank (TSX:NA), TD Bank (TSX:TD), CIBC (TSX:CM) report on Thursday while Royal Bank (TSX:RY) issues earnings on Friday. TD Bank (TSX:TD) advanced 92 cents to $67.38 and Bank of Montreal (TSX:BMO) moved up 77 cents to $54.52.

The TSX Venture Exchange moved ahead 35.43 points to 1,450.49.
New York indexes also made solid gains with the Dow Jones industrials up 126.74 points to 10,471.58 after the Institute for Supply Management said its manufacturing index came in at 53.6 in November after a 55.7 reading in October. A reading above 50 indicates growth but the showing was below the 55 level that economists had expected.

“We are not overly concerned with the monthly drop, as there has been a lot of positive momentum in this indicator recently, which indicates the manufacturing sector is trying to catch its breath rather than what runners like to call hitting the wall,” said Ian Pollick, economics strategist at TD Securities.

@page_break@“Additionally, it would be a mistake not to recognize that the absolute level of the index continues to sit above the 50-threshold.”

The Nasdaq composite index rose 31.21 points to 2,175.81 while the S&P 500 index climbed 13.23 points to 1,108.86.

Other data showed that number of homebuyers who signed contracts to buy previously occupied homes rose 3.7% from September to October. The National Association of Realtors’ adjusted index of sales agreements hit 114.1. Economists surveyed by Thomson Reuters expected the index would fall to 109.5.

And construction spending posted a tiny increase in October, the first advance in six months.

In other corporate news, Agnico-Eagle Mines Ltd. (TSX:AEM) said Monday that drilling results support the company’s position that there is considerable exploration upside at its Kittila project in Finland and Pinos Altos project in Mexico. Its shares rose $2.86 to $68.66.