The Toronto stock market registered a modest gain Tuesday amid hopes that the European Central Bank will ease the financial crisis by taking steps to reduce the borrowing costs of deeply indebted countries such as Spain and, to a lesser extent, Italy.
But enthusiasm faded late in the session and the S&P/TSX composite index closed well off early triple-digit highs, up 40.89 points to 12,116.92. The TSX Venture Exchange was ahead 9.98 points at 1,239.32.
The Canadian dollar was also well off session highs, moving down US0.13¢ to US$1.0104 after earlier hitting a fresh 3 1/2month high of US$1.016 amid rising commodity prices.
U.S. markets also gave up early gains as the Dow Jones industrials fell 68.06 points to 13,203.58, the Nasdaq composite index was down 8.95 points at 3,067.26 and the S&P 500 index slipped 4.96 points to 1,413.17.
The hope is that the ECB will buy government bonds as a way to reduce borrowing costs for highly indebted countries, which had spiked earlier this year to unsustainable levels. The German central bank, the Bundesbank, is alone in opposing such a move and some traders are betting that a compromise will be reached.
Still, stocks retreated from session highs amid plenty of skepticism about this latest round of speculation about what the ECB might do.
"There is still a lot of open-ended questions here about the process, what type of money is involved," said Gareth Watson, vice-president investment management and research, Richardson GMP Ltd.
"And I think the market would probably take even more confidence if they said they were doing this at all costs to get to a certain yield, no matter how much money (it takes). The market would love to hear that. But realistically, if the Bundesbank gets on side I don't think they're going to write this completely blank cheque."
Stocks have rallied strongly during August on hopes that central banks will do what's needed to keep the economic recovery alive and in the case of the ECB, protect the euro currency union.
But Watson thinks markets are expecting follow through quickly.
"There's all these expectations but we're currently in a waiting period until these events happen, to see if these expectations become reality," he said, adding that "if nothing happens in the next three weeks ... this market could easily turn the other way very quickly."
The energy sector rose 0.32% as the September crude contract on the New York Mercantile Exchange gained 43¢ to US$96.40 a barrel. Cenovus Energy rose 44¢ to $33.31.
