Markets bounce back as Blix asks for time

www.globeandmail.com By MARIAN STINSON Saturday, February 15, 2003 - Page B1

North American markets heaved a sigh of relief yesterday and stocks, bonds and the U.S. dollar rallied after UN weapons inspector Hans Blix asked for more time to determine whether Iraq has disarmed.

On Wall Street, the Dow Jones industrial average of blue-chip stocks rose 158.93 points or 2.05 per cent to 7,908.80 by the closing bell while in Toronto the S&P/TSX climbed 34 points to 6,487.13.

"Into the weekend there's a feeling that we have time to breathe and there will be no war for at least a couple of days," said Andrew Pyle, a senior economist at Bank of Nova Scotia. "It's an amazing shift in mood from Thursday," when fears of terrorist attacks and a war with Iraq triggered widespread losses, he added.

"The tone of the Blix report was so dovish that it puts the onus on the U.S. to come up with something" to justify an attack on Iraq, he said. "Now there is a sense that nothing will happen immediately."

Mr. Blix told the Security Council in New York that the inspectors found no weapons of mass destruction in Iraq but the country has not accounted for all of its prohibited weapons.

Stock prices bounced back after falling in seven of the past eight days, said Scott Kinnear, an analyst with MMS International. "Buyers were picking their spots, he added, since "stocks of some high-quality companies have been battered in the last two weeks."

News that U.S. industrial production was higher than expected last month also improved equity market sentiment, he added.

The U.S. dollar moved higher against the euro, the Swiss franc and the Canadian dollar, which fell by one-quarter of a cent to end the day at 65.66 cents (U.S.), down 0.23 cents from Thursday. The greenback strengthened to 1.0791 for each euro from 1.0832 the previous day.

Oil prices continued to climb above $36 a barrel as supply pressures persisted, not only because of the situation in the Middle East, but also as a result of the general strike in Venezuela and a pending strike by oil workers in Nigeria.

Even though a war with Iraq could be delayed, there still could be supply disruptions from there, Mr. Kinnear said.

Gold prices dropped sharply by $5.50 an ounce to $352.20 as fears of an imminent war eased.

Bond markets also shed some war fears, as prices fell for the first time in four days on the prospect that an attack on Iraq is not imminent. The 10-year U.S. Treasury issue dropped by $6.25 for each $1,000 in face value, lifting the yield by eight basis points to 3.96 per cent.

"In a week when duct tape was the hottest purchase in the U.S. and stocks were on the ropes, it's little surprise that Treasury yields fell across the board [this week]," Sherry Cooper, chief economist at BMO Nesbitt Burns, said in a commentary. The 10-year yield on U.S. Treasury bonds fell below 3.9 per cent this week for the first time this year and the two-year yield dropped below 1.6 per cent.

U.S. markets are closed on Monday to commemorate Presidents' Day.