Source: The Canadian Press

Financial stocks could provide some lift for the Toronto stock market Wednesday amid published reports that European Union officials are examining plans for a co-ordinated recapitalization of European banks.

In an interview with the Financial Times, European Commissioner Olli Rehn hinted at a possible bank recapitalization plan.

Investors have been concerned over the last couple of months about the slowing pace of economic revival and a possible debt default by Greece, which would worsen economic conditions and cause havoc on the European financial sector.

An increased appetite for risk sent the Canadian dollar up 0.32 of a cent to 95.12 cents US.

However, investors were careful not to get too carried away by Rehn’s comment, as he gave no details of the recapitalization plans under discussion.

“Whilst it is encouraging that EU leaders are addressing the perceived weakness of the financial system, it would not be unusual for the initial positive reaction to be followed by concern on delay as agreement on broad principles turns to disagreement on detail,” said Adam Cole, Global Head, FX Strategy at RBC Capital Markets.

An announcement that ratings agency Moody’s Investor Services had downgraded Italy’s debt by three notches to A2 was taken in stride on financial markets. Moody’s cited high debt, a weak global economy and political uncertainties.

Meanwhile, Franco-Belgian bank Dexia was in the spotlight once again Wednesday amid mounting expectations that it will be broken up somehow, possibly as soon as Thursday.

Dexia has been at the forefront of investor concerns over its exposure to potentially bad debt from Europe’s most indebted countries. Investors are concerned about what bonds Europe’s banks are holding, and banks themselves have become reluctant to lend to one another.

In Asia, Japan’s Nikkei index closed 0.9% lower and Korea’s Kospi index ended 2.3% down.

Stock markets in Hong Kong and mainland China were closed for a holiday.

European bourses advanced with London’s FTSE 100 index up 1.94%, Frankfurt’s DAX gained 3.94% and the Paris CAC 40 advanced 2.75%.

Oil prices advanced with the November crude contract on the New York Mercantile Exchange ahead $2.17 after losing almost $2 on Tuesday to its lowest close since September, 2010.

Other commodities were mixed with December gold in New York ahead $1.40 to US$1,617.40 an ounce while December copper prices were unchanged at US$3.10.

The TSX has closed lower for the past three days, leaving Canada’s biggest stock market in bear market territory, down 22% from its 2011 highs from early March.

Commodity prices have taken a huge hit since early August when investors started to get concerned that global growth was faltering and there was a growing possibility that economies could slide back into recession.

That in turn has resulted in large losses in energy and mining companies on the resource-heavy TSX as oil prices have slid about 20% in the last two months while copper has plunged 31%.

Copper is widely viewed as a barometer for the health of the overall global economy since it is used in electronics, homes and infrastructure.

On the corporate front, Talisman Energy Inc. (TSX:TLM) shares will be in focus after the energy company lowered its full-year production forecast to about 425,000 barrels of oil per day. That is down from a previous estimate of 430,000 to 440,000 barrels, as it resumes production at its Rev facility in Norway.

Precision Drilling Corporation (TSX:PD) has signed deals to build eight new rigs for the Canadian and U.S. oil and gas industry. Financial terms of the contracts, announced Wednesday, were not revealed by the big Calgary-based drilling services company.

Labopharm Inc. (TSX: DDS) and Gruppo Angelini have terminated their existing joint venture agreement established in May 2010 and restructured their drug-commercialization partnership.

Costco Wholesale Corp.’s fiscal fourth-quarter net income climbed 11% to US$478 million as the wholesale club operator made more money on membership fees and saw sales rise. But the performance missed analysts’ expectations. The company also said Wednesday it will raise annual membership fees starting next month.