Canadian Stocks Gain After Core Inflation Unexpectedly Slows

Canadian stocks gained, completing a weekly advance, on speculation the Bank of Canada may delay future interest rate increases.

Bank of Nova Scotia, the country’s third-largest lender by assets, rose 0.5 percent after the central bank reported a drop in consumer prices excluding certain items. BlackBerry maker Research In Motion Ltd. (BB) lost 2.8 percent after Morgan Stanley analyst Ehud Gelblum cut his rating on the shares. Potash Corp. of Saskatchewan Inc., the world’s largest fertilizer producer, advanced 1.4 percent to bring its weekly surge to 35 percent.

The Standard & Poor’s/TSX Composite Index (SPTSX) climbed 11.89 points, or 0.1 percent, to 11,722.07.

“In Canada, instead of going up every time, now there’s a thought they’d go up once Sept. 8 and then stop,” Bruce Campbell, president of Campbell & Lee Investment Management Inc. in Oakville, Ontario, said of interest rates. “I don’t think there’s inflation worries.”

The Canadian benchmark advanced 1.7 percent this week due largely to BHP Billiton Ltd.’s unsolicited $40 billion offer for Potash Corp. An 11 percent rally in S&P/TSX materials stocks has lifted the broader index to a 1.5 percent return this year, including dividends, compared with a total return of minus 2.7 percent for the S&P 500.

The Bank of Canada said core inflation, which excludes eight volatile items and changes to indirect taxes, dropped 0.1 percent last month.

Surprise

Most of the 18 economists in a Bloomberg survey had forecast an increase. The decline in consumer prices raised speculation the Bank of Canada may hold off on raising interest rates. The central bank has increased its benchmark lending rate twice this year.

In a forecast issued today, James Knightley, senior economist at ING Financial Markets in London, said the benchmark rate will remain at 0.75 percent until the second quarter of next year.

Seven of Canada’s eight publicly traded banks gained. Scotiabank advanced 0.5 percent to C$50.85. Toronto-Dominion Bank, the country’s second-largest bank, increased 0.5 percent to C$70.52. National Bank of Canada, the No. 6 lender by assets, rallied 1.6 percent to C$57.24.

The prospect of steady interest rates lifted other dividend-paying stocks. TransCanada Corp. (TRP), owner of Canada’s largest pipeline system, rose 1.4 percent to C$36.82. Telus Corp. (T), the country’s third-biggest wireless carrier by subscribers, gained 1.4 percent to C$42.61.

Offer Speculation

Potash Corp. advanced 1.4 percent to C$157.06. In an interview with Bloomberg Television, Dahlman Rose analyst Charles Neivert said BHP may eventually boost its offer to more than $150 a share from $130 a share for the Saskatoon, Saskatchewan, company. Potash Corp. may also interest Chinese buyers, he said.

RIM lost 2.8 percent to C$51, bringing its slump since Aug. 11 to 13 percent.

Gelblum cut his rating on Canada’s largest technology company to “underweight” from “overweight,” citing “the ongoing chorus” of Asian countries threatening to restrict BlackBerry service over national-security concerns.

In a note to clients, Gelblum said RIM’s market share is also at risk from the popularity of Apple Inc.’s iPhone and devices using Google Inc.’s Android operating system, as well as “lukewarm initial sales” of the BlackBerry Torch smartphone.

Mining Rights

First Quantum Minerals Ltd. (FM), Canada’s second-largest publicly traded copper producer, plunged 9.2 percent to C$56.15. The Democratic Republic of Congo granted rights to the Kolwezi copper and cobalt project, formerly held by First Quantum, to London-based Eurasian Natural Resources Corp. The Canadian company is challenging Congo’s revocation of its rights to the project in international forums.

Onex Corp. (OCX), Canada’s largest publicly traded buyout firm, climbed 5.8 percent to C$28.84 after Bank of Montreal (BMO) analyst Peter Sklar raised his rating on the stock to “outperform” from “market perform.” Sklar wrote to clients that he based the change on a revaluation of the company’s investments from financial disclosures released last week.

CoolBrands International Inc., which formerly made frozen desserts, soared 24 percent to a four-year high of C$2.35 after incoming Chairman Wayne Huizenga told CNBC he plans to move it to Charlotte, North Carolina, and list its shares on Nasdaq. Swisher International Inc., Huizenga’s cleaning-services company, is merging with CoolBrands to become publicly traded.

To contact the reporter on this story; Matt Walcoff in Toronto at mwalcoff1@bloomberg.net

To contact the editor responsible for this story: Michael P. Regan in New York at mregan12@bloomberg.net.

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