TSX climbs on banks, Europe hopes

Toronto's main stock index was higher on Friday morning, on track to post its biggest weekly gain in more than two years, pushed up by strong bank earnings, encouraging U.S. jobs data and talk of more action to ease Europe's debt.

Royal Bank of Canada was the most heavily weighted gainer, up 3.8 percent at C$48.80, after Canada's biggest lender reported a quarterly profit that beat expectations, helped by solid growth in mortgages and business loans, which overshadowed weak capital markets-related income.

The (bank) earnings reports have surprised most people to the upside, especially the Royal Bank's report, said Douglas Davis, chief executive at Davis-Rea. There was a lot negative chatter about the Royal Bank, including (CEO Gordon Nixon's) speech in the States when he said that loan growth had slowed a lot, and I think people thought 'uh-oh, he's preparing the market for a bad announcement'. But it didn't happen.

Canada's No. 2 lender, Toronto-Dominion Bank, was the second top advancer, up 2.4 percent at C$73.63, after announcing stronger-than-expected results on Thursday.

The U.S. unemployment rate fell to a 2-1/2 year low of 8.6 percent in November as companies stepped up hiring, further evidence the U.S. economic recovery was gaining momentum.

Markets also latched on to chatter that policymakers appeared to move a step closer to tackling Europe's debt crisis.

Bloomberg cited sources as saying the European Central Bank was gearing up to lend as much as 200 billion euros ($270 billion) to the International Monetary Fund in a bid to ease the debt crisis.

Earlier this week, officials told Reuters at a euro zone finance ministers' meeting that they had not fixed a figure for a possible increase in funds for the IMF.

Meanwhile, German Chancellor Angela Merkel reiterated her strong support for the euro, and called for a rapid European Union treaty change to remedy the root causes of the euro zone's debt crisis. She warned, however, that Europeans faced a long, hard marathon to restore lost market credibility.

The seems to be, I won't say exuberant today, but certainly it's feeling better today, Davis said. I think that what's happened is the problem is in focus and now everyone is starting to work hard to help to solve the problem and in time I think that they will solve it.

At 10:32 a.m., the Toronto Stock Exchange's S&P/TSX composite index was up 93.68 points, or 0.8 pct, at 12,206.97, its highest level in more than two weeks. Six of the index's 10 sectors were in positive territory.

Earlier this week, the index had its biggest single-day gain since March 2009, spiking more than 4 percent.

Equity strategists and fund managers polled by Reuters predict stocks will continue to grind higher in 2012 as policymakers iron out the euro zone's sovereign debt crisis and improving economic data in Canada and the United States soothes investor concerns about global growth.

The heaviest decliner was Research In Motion, which plunged 8.3 percent to C$17.25 after the BlackBerry maker warned it would fall short of its financial targets after taking a huge charge to write down inventories on its languishing PlayBook tablet.

Bank of Nova Scotia was the second biggest drag on the TSX, down 1.4 percent at C$49.55, despite announcing a 10.7 percent rise in fourth-quarter profit.

($1=$1.02 Canadian)