Money world

The Toronto stock market jumped almost 200 points mid-afternoon today after employment news from the United States raised hopes that the country will escape sliding into recession.

The U.S. Labour Department reported that the economy shed 20,000 jobs during April, a lot less than the 78,000 loss that economists had expected.

"If you believe the employment numbers, we're probably in something that looks a lot worse than the soft landing of 1996, which felt pretty bumpy when it happened. But it's not nearly as bad as the recession of 2001," said John Johnston, chief strategist, The Harbour Group RBC Dominion Securities.

"So we're either in a very unsoft landing or a very ultra-mild recession."

The unemployment rate dipped to five per cent from 5.1 per cent in March.

However, New York markets shed early strong gains as investors stepped back after Thursday's big runup.

Toronto's S&P/TSX composite index moved up 191.24 points to 14,257.05 led by the energy and financial sectors.

The TSX Venture Exchange moved 15.88 points higher to 2,479.79 while the Canadian dollar was up 0.03 cent to 98.14 cents US.

New York's Dow Jones industrials dipped 2.85 points to 13,007.15.

The Nasdaq composite index lost 15.73 points to 2,464.98, weighed down by Sun Microsystems Inc., which stunned investors late Thursday by reporting a loss for the third quarter.

The server and software maker blamed the loss on sagging sales to U.S. consumer-oriented companies that are delaying big-ticket spending and its shares plunged $3.64 or 22.3 per cent to US$12.69.

The S&P 500 index eased 0.57 of a point to 1,408.77.

Dave Rovelli, managing director of U.S. equity trading at Canaccord Adams in New York, said stocks pulled back from the day's highs as investors locked in gains following a decent run-up.

"This is just normal profit-taking," he said, adding: "Sun Microsystem's earnings today didn't help the cause."

Microsoft Corp. may go hostile in its bid for Yahoo Inc. as soon as today, according to a report in The Wall Street Journal. The world's largest software company is expected to announce it will go straight to Yahoo's shareholders to try and buy the company.

Meanwhile, the Fed said it will work with European central banks to expand a series of efforts to deal with the global credit crisis. The Fed said it will boost the amount of emergency reserves it supplies to U.S. banks to US$150 billion in May, up from the $100 billion it supplied in April.

On the TSX, the energy sector was 1.8 per cent higher as the June crude contract on the New York Mercantile Exchange rose $3.05 to US$115.57 a barrel.

EnCana Corp guaranteed approval cash advance loans. (TSX: ECA) ran ahead $1.22 to $80.27 and Suncor Energy (TSX: SU) gained $2.47 to $113.07.

The financial sector gained 0.75 per cent with Royal Bank (TSX: RY) up 80 cents to $50 and Bank of Montreal moved ahead $1.05 to $51.77.

Gold prices ran ahead with the June bullion contract in New York up $7.10 to US$858 an ounce, taking the gold sector 1.2 per cent higher. Kinross Gold Corp. (TSX: K) climbed 39 cents to $19.43.

The base metals sector was up 2.5 per cent as Teck Cominco Ltd. (TSX: TCK.B) added 95 cents to $44.55 while Sherritt International (TSX: S) climbed 47 cents to $14.87.

The market was also supported by Research In Motion (TSX: RIM) following the launch of new software for business users. RIM and its partner global software giant SAP say the new software will allow BlackBerry users to be untethered from their computers and their offices to do their jobs, news which sent the company's stock up $3.41 to $134.05 after hitting an all-time high of $134.98.

The market earlier got added support from Nortel Networks Corp.'s (TSX: NT) quarterly earnings report.

The telecommunications equipment maker said its loss in the quarter was US$138 million, deeper than US$103 million a year-ago on restructuring costs, foreign exchange rates and a patent lawsuit settlement.

The loss, excluding special charges, amounted to five cents per share – analysts had expected a loss of 14 cents a share – but its shares lost early momentum to trade down 31 cents to $8.56.

Investors also took in news from fertilizer producer Agrium Inc. (TSX: AGU), which is in the process of taking over UAP Holding Corp., and said today its first-quarter profit rose to US$195 million and reversed a year-ago loss of $11 million.

The Calgary-based company also announced it expected earnings per share of between $1.92 and $2.22 for the second quarter, or $3.15 to $3.45 per share for the first half of the year. Its shares climbed $4.12 to $83.72.

Shares in fertilizer giant Potash Corp. (TSX: POT) advanced $5.10 to $191.65.

Canfor Corp. (TSX: CFP) posted a net loss widened to $85.4 million in the first quarter, from year-ago $42.7 million. Its shares rose 18 cents to $8.40.

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OTTAWA – Canada staggered toward recessionary levels in February as an economic retreat extending from the factory floor to the storefront resulted in the second contraction in the past three months.

"We're not in a recession but it's pretty darn close," said TD Bank chief economist Don Drummond after Statistics Canada reported the nation's gross domestic product shrank 0.2 per cent, a much more severe decline than most analysts had predicted.

The setback from January's 0.6 per cent advance puts in serious question whether the economy will meet the Bank of Canada's expectation, updated only last week, of one per cent growth for the first quarter.

"The official call for growth in the first quarter is one per cent, but now it looks like we could match the weak growth in the U.S., something like half-a-percentage point," said Paul Ferley, deputy chief economist with the Royal Bank.

Drummond said it could be worse, estimating that if March comes in flat the advance for the first quarter would only amount to 0.2 per cent, virtually non-existent.

"It doesn't really matter, the economy is going sideways for all intents and purposes and the second quarter is looking flat as well, possibly a negative."

Most worrying, said Drummond, is that the weakness in February was not attributed only to the usual suspects – manufacturing and exports.

The manufacturing slump did continue in February, falling 0.7 per cent further, an indication that Ontario may be close to a recession. But retail trade also fell 0.6 per cent, largely as a result of poor sales at clothing stores, pharmacies and car dealerships.

As well, wholesale activity dropped 1.4 per cent, particularly in motor vehicle and building supplies, and the energy sector fell 0.9 per cent, tripped by a contraction in oil and gas extraction.

"That's part of the sequence we were predicting, that if the exports go down, it's going to leak into the domestic economy. I don't want to make too much out of one month, but maybe this is the beginning of the signs of this happening," Drummond said.

The numbers suggest that the U.S. slowdown and the ongoing turmoil in the financial sectors were continuing to take a big toll out of the export sector, and that was now filtering through to other parts of the economy as well.

Over the past three months, Canadian economic activity actually contracted 0.7 per cent on an annual basis, the deepest three-month retreat since 1997 and the first negative three-month calculation since Nov. 2001, when the U.S. fell into recession, said BMO senior economist Michael Gregory.

Gregory added that looking at the past year in three-month instalments, the Canadian economy has slid from a 3.9 per cent advance to 3.0 per cent, to 1.4 per cent to the current minus 0.7 per cent.

While Statistics Canada does no do a provincial breakdown, most economists expect that Ontario's economy, which is more heavily-weighted to the slumping manufacturing and exports sector, likely was weaker than the national.

On Tuesday, the TD Bank predicted Ontario could become a have-not province in terms of qualifying for federal equalization payments in two years, noting that the province's GDP per capital has fallen from seven per cent above to two per cent below the national average over the past five years.

As well, both Torstar Corporation (TSX: TS.B) and Rogers Communications Inc pay day advance. (TSX: RCI.B) reported this week that the slowing economy was beginning to impact their businesses.

There was little good news coming from south of the border, either. The U.S. Commerce Department reported the American economy limped forward by 0.6 per cent in the first quarter, the same as the fourth quarter of 2007, just short of the common definition of recession of two consecutive negative quarters.

Worries over the growing threat of a recession there, brought on by the deep housing slump and credit crisis, prompted the U.S. Federal Reserve to cut a key interest rate Wednesday by a quarter-point.

But economists cautioned about jumping the gun on forecasting a Canadian recession based on February's bleak numbers.

They noted that employment has remain strong throughout the first quarter and that some sectoral setbacks in February, such as petroleum production and aerospace, are particularly volatile and could bounce back in March.

As well, the sales retreat may turn out to be a one-month breather of a sector that has been strong for several years, rather than an indication of a trend.

"These results do not preclude a positive figure for quarterly GDP growth in quarter one," Gregory said.

"However, the report highlights the fact that Canada's sturdy domestic demand is being nearly offset by the headwinds coming from the U.S. recession, a strong loonie and tighter credit conditions."

Drummond said the weak gross domestic activity report likely means that Bank of Canada government Mark Carney may make his third consecutive 50-basis point cut in interest rates at the next announcement date in June.

Not all elements of the economy were weak in February. Statistics Canada said tourism, government-related industries and construction gained during the month, but insufficiently to offset the widespread declines.

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