Energy shares help TSX shake off Europe downgrade

Canadian stocks were slightly higher on Monday, as gains by energy and mining issues offset lower financials, while investors largely shrugged off last week's euro zone ratings downgrades.

The aftershock from Friday's credit downgrades of nine euro zone countries by Standard and Poor's, including France's triple-A mark, dissipated by Monday as investors had mostly priced in the turbulence.

An awful lot of this is baked in, said Bob Gorman, chief portfolio strategist at TD Waterhouse. Ratings agencies tend to be a lagging indicator rather than a leading one. They respond to what has happened rather than what is going to happen.

Energy shares were lifted by stronger oil prices on Monday as Brent crude rose above $111 a barrel on worries over supply disruptions after Iran warned its Gulf neighbors of consequences if they raised oil output to replace Iranian barrels facing international sanctions.

Provident Energy (PVE.TO: Quote) led the sector's gains, rising more than 16 percent to C$11.05 after Pembina Pipeline (PPL.TO: Quote) said on Monday it would buy the natural gas producer for C$3.24 billion ($3.16 billion).

Heavily weighted materials issues were boosted by Potash Corp (POT.TO:Quote), which rose 1.5 percent to C$46.50, after its stock was raised to outperform by Canadian Imperial Bank of Commerce.

Barrick Gold (ABX.TO: Quote) also helped the gains, climbing 0.7 percent to C$49.78, as bullion was supported by the euro's rise off 17-month lows and a survey that showed miners expect the price of gold to continue climbing in 2012 and peak around $2,000 an ounce.

At 11:30 a.m. (1630 GMT), the Toronto Stock Exchange's S&P/TSX composite index .GSPTSE was up 32.87 points, or 0.3 percent, at 12,263.93. Volumes were thin with U.S. markets closed for a holiday.

Financial issues were down slightly at 0.1 percent, as the European debt crisis weighed on investors' appetite for bank stocks. Bank of Nova Scotia BNS.TO led the sector's retreat, dropping 0.8 percent to C$51.66.

Despite the S&P downgrades, a fresh round of European debt auctions fared well, buoyed by buying from the European Central Bank. Italian five-year bond yields dropped to around 5.85 percent while yields on French treasury bills also eased.

Obviously they all have a long road ahead of them to try to deal with the fundamental issues, said Gorman.

In Canada, the economic picture was helped by solid housing data on Monday that showed sales of existing homes rose slightly in December from November, while the number of newly listed properties also increased.

It's been coming in at the upper end of most expectations, which reflects the fact that our employment rate, while higher than we'd like, is not too bad and interest rates are ultra-low, said Gorman.

In individual company news, Canadian National Railway (CNR.TO: Quote) shares fell more than 2 percent to C$76.60 on the heels of a downgrade by Canaccord Genuity on Friday after the company asked ex-CEO Hunter Harrison to reconsider the idea of taking over as chief executive at rival Canadian Pacific CP.TO.

($1=$1.02 Canadian)