PayNet, which tracks commercial financing for millions of
North American small and medium-sized businesses, said its
Canadian Business Lending Index rose to 194, the highest level
since it was created in 2005.

The index rose 4 percent in the first quarter from the
fourth quarter and was up 29 percent year-over-year.

“The demand for our goods and services, and our resources is
definitely fueling the increase in investment by Canadian
businesses,” Anthony Zambon, director of PayNet Canada, said.

“The data shows small- and medium-sized businesses are
resilient and continuing to invest, with the prospect of
supporting economic growth in the near future.”

Small- and mid-sized businesses have been stepping up
investment in the construction of plants and commercial
buildings and in machinery and equipment, he added.

The advance marked the 10th consecutive quarter of growth
since the index bottomed out in 2010, and the seventh straight
double-digit advance on a year-over-year basis.

The PayNet data, which tracks lending across sectors
including manufacturing, retail and transportation, showed that
commercial loan growth in Canada outstripped growth in the
United States.

“The U.S. was been wallowing,” Zambon said. “The growth
trend of investment by U.S. private companies is slowing. The
U.S. small business lending index has fallen for the third month
in a row.”

The commercial lenders include independent finance
companies, big banks and nonbank players such as machinery
makers, whose loans and leases to customers are secured against
the equipment sold.

PayNet’s Canadian unit collects data on more than 700,000
loan contracts worth more than US$47 billion.

LOAN PAYMENT DELAYS LENGTHEN

Other data from PayNet showed higher loan delinquencies.

Moderate loan delinquencies – defined as those being late by
30 days or more – rose to 1.35 percent of total loans in March
from 0.80 percent in December. It was the highest rate in about
a year.

Severe loans in arrears – those behind more than 90 days -
climbed to 0.38 percent in March, from 0.29 percent in December.

“With greater investment comes increased credit risk,”
Zambon said. “That’s a reflection of increased activity and
higher risk being taken by the lenders. That shows a return to
more normal credit conditions.”

Earnings beats and any optimistic outlooks are now more
likely to provide a boost when some of the biggest companies
start reporting next week.

“It’s the magic of low expectations,” said CIBC World
Markets senior economist Peter Buchanan. “Commodity markets
aren’t that great, and developments in the domestic economy
haven’t been wonderful, but the bar (for earnings) is not set
very high.”

Telecommunications company Rogers Communications Inc
and Canadian National Railway, the country’s
largest rail carrier, will be among the first to kick off the
season, reporting their first-quarter reports on Monday.

Analysts expect earnings from companies in the Toronto Stock
Exchange’s benchmark S&P/TSX composite index to show
only a 0.2 percent rise from a year earlier, according to
Thomson Reuters StarMine SmartEstimates.

“The forecasts seem to be more dire than the reality,” said
Serge Pepin, vice president of investment strategy at BMO Asset
Management Canada. “We’re going into the earnings season with
this thought that things won’t be as good.”

TSX LAGS U.S. RALLY

Results that top the very modest expectations could prove to
be a much-needed catalyst for languishing Canadian stocks,
market strategists said. The TSX composite is down more than 3
percent so far this year, compared with a gain of more than 8
percent in the Standard & Poor’s 500 Index.

Toronto stocks have lagged as earnings expectations have
fallen about 5 percent for TSX components in the last three
months, compared with a 3 percent decline for S&P 500 companies,
data from StarMine showed.

The sector expected to show the biggest earnings decline is
energy, which accounts for about 25 percent of the value of the
Canadian index. Prices for the country’s heavy crude oil slumped
in the first three months of this year, and analysts now expect
energy companies to report a profit drop of more than 7 percent.

However, Elvis Picardo, strategist and vice president of
research at Global Securities in Vancouver, said most investors
would pay more attention to companies’ outlooks than to
first-quarter results.

“That’s usually the case, but more so this time,” he said.

The most vulnerable segment in this regard may be gold
producers, which have had a disastrous run this year. While
first-quarter numbers will not reflect a recent dramatic selloff
in gold, including a record one-day drop, it could start to show
up in projections.

Still, the materials sector, home to gold companies, is
trading at a huge discount to historical levels, said Craig
Fehr, Canadian market strategist at Edward Jones in St. Louis.

“Valuations are attractive, and they are already pricing in
expectations for some earnings disappointment,” he said.

Indeed, the TSX composite index as a whole is trading about
13 times one-year forward earnings, according to Thomson Reuters
data. That is also below historical levels.

BRIGHT SPOTS

The strongest growth in the quarter is likely to come from
the healthcare sector, where earnings are expected to climb 15.5
percent, according to StarMine.

Another bright spot is the industrials space, which includes
Canadian Pacific Railway and CN Rail. Analysts expect
the sector to record profit growth of about 7 percent.

But the picture is more mixed for financial stocks, which
make up almost a third of the index. Earnings are seen rising
just 3.5 percent as the Canadian economy slows and housing
market cools.

“Financials are not going to provide the same lift that they
did in the fourth quarter, but that’s more due to the weakness
in the nonbanking sectors than in the banks themselves,” said
CIBC’s Buchanan, who sees weakness in real estate investment
trusts and insurers.

Longer-term, analysts said the Canadian market’s prospects
hinged on the global economy, which effectively sets the price
for much of the country’s resource exports.

But with an unsteady U.S. recovery, as well as mixed signals
out of recession-hit Europe and higher-growth China, relief is
far from certain.

“The beacon of hope,” said Global’s Picardo, “is that the
global economy does a little better than expected and the TSX
will do well.”

(Editing by Jeffrey Hodgson and Lisa Von Ahn)

“We’ve always been clear about two things. One, that we will not have a fire sale – we will not sell the shares without getting the best value we can for Canadian taxpayers – and secondly, that we are a Conservative government. We are not interested in the long term in being shareholders in private corporations,” Flaherty told reporters in Burlington, Ontario.

“Over time we do intend to divest. On the timing, I’ll have to get back to you.”

Canada’s federal government and the province of Ontario became shareholders of GM in 2009, when they contributed a combined C$10.8 billion ($10.89 billion) to a bailout to keep GM afloat. The U.S. government provided about US$50 billion.

Canada and Ontario’s combined 9 percent stake, made up of around 140 million common shares and 16.1 million preferred shares, was worth C$3.5 billion at the end of September.

GM said on Wednesday it will buy back 200 million of its shares from the U.S. Treasury, which intends to sell the rest of its GM stake over the next 15 months, bringing to an end ownership that led to the nickname “Government Motors.”

Flaherty said he spoke Wednesday morning with the chairman of General Motors, Dan Akerson, to discuss the sale.

“It is something we will now consider,” he said.

Flaherty also addressed a debate over Canada’s public pension plan, the Canada Pension Plan (CPP), saying that at some point it may be appropriate to increase CPP contributions, but that now was not the time because the economy was not strong enough.

He declined to comment on the controversy surrounding Bank of Canada Governor Mark Carney’s interaction with members of the opposition Liberal Party.

Carney, who will become governor of the Bank of England in July, has been under fire after details emerged about Liberal efforts earlier this year to woo him to run for the leadership of the party, which was once dominant but is now Canada’s third-place party.

“I’ve spoken with to the governor, I really don’t have any comment on the issue right now. I imagine he, at some point, might be willing to respond,” Flaherty said.

Bank of Canada spokesman Jeremy Harrison said no statement from Carney was imminent: “The bank currently has no media activities planned for the governor over the next few weeks of the Christmas holidays. The governor has a regularly scheduled press conference on 23 January, in support of the MPR (Monetary Policy Report).”

(Writing by Andrea Hopkins; Editing by Peter Galloway)

Asked about lessons he would take to his next position, as the head of the Bank of England, Carney stressed the importance of speedy, transparent action to address potential flashpoints.

He felt Canadian policymakers were open about the depth of their troubles, for example, in the asset-backed commercial paper market and had benefited from the bank’s flexible inflation target, which underpins monetary policy.

“We didn’t have bank failures and we didn’t have other issues … in part we didn’t have those because we made tough decisions in a timely fashion,” said Carney, who will leave the Canadian central bank on June 1 and become Bank of England governor on July 1.

He stressed that none of his comments were directly applicable to the British central bank and it would not be appropriate to comment on British policy ahead of planned testimony to the British Parliament’s Treasury Select Committee.

“So the first thing is transparency,” Carney said. “You have to level with people on the scale of the problem. It does no good to try to spin your way out of the crisis, if you will.

“Secondly, the importance of having a plan, explaining that plan and then executing the plan … Someone has to take a decision, take control, and we played a role in that.”

Carney also said a Canadian strength was the strong coordination among the major financial authorities, as well as the depth of talent at the central bank.

One major change he will face is that the Bank of England does not operate by consensus and with one voice, as does the Bank of Canada, and the governor can be outvoted.

The Bank of Canada has an inflation target of 2 percent within a range of 1 to 3 percent, but Carney has also discussed the idea of flexible targeting, where rates could be higher than needed to keep inflation at 2 percent, to lean against an asset bubble, say in the housing market.

“But in order to get the most benefit from that framework, transparency, communication, is absolutely crucial,” he said. “And there’s ways to use communication to potentially amplify that power in extraordinary circumstances, which may be appropriate in some jurisdictions, not in other jurisdictions.”

He said the Bank of Canada explored the idea of changing the target altogether from inflation to nominal gross domestic product (real gross domestic product plus inflation), but decided against that.

Exploring the idea of “enhanced guidance” – such as the Bank of Canada’s conditional commitment in April 2009 to keep rates low through the second quarter of 2010 and the U.S. Federal Reserve’s current interest rate policy – he said the tactic could be used more broadly.

One possibility was a commitment to highly accommodative policy even after the economy and inflation picks up, to achieve a better path for the economy over time.

“To ‘tie its hand,’ a central bank could announce precise numerical thresholds for inflation and unemployment that must be met before reducing stimulus,” he added.

(Writing by Randall Palmer; Editing by Janet Guttsman and Andre Grenon)

In his first speech since being appointed as the next Bank
of England governor, Carney repeated the bank’s mildly hawkish
line on the likelihood of a modest withdrawal of stimulus
measures. That stance, maintained since April, has made Canada’s
central bank an outlier among the central banks of developed
countries.

He said additional guidance from the bank would be
forthcoming if it were to raise rates specifically to address
excessive household debt in Canada, which would signify a
departure from its conventional practice of targeting 2 percent
inflation.

“In current circumstances, the bank may want to set interest
rates higher than would otherwise be warranted to bring
inflation back to target within the typical six- to
eight-quarter time frame,” Carney said in the prepared text of a
speech he was giving in Toronto.

High household debt and a heated housing market remain the
biggest domestic threats to Canada’s financial system, the bank
said in its semi-annual Financial System Review last week.

“If the bank were to lean against such imbalances, we would
clearly say we are doing so, and indicate how much longer we
expect it would take for inflation to return to the 2 percent
target,” he said.

Carney noted that the share of new fixed-rate mortgages in
Canada had almost doubled this year to 90 percent, and
attributed that in part to the central bank’s “tightening bias”.

“Our current guidance indicates that some policy action may
be necessary, encouraging a degree of prudence in household
borrowing,” he said.

The bank has held its key overnight lending target at 1
percent for more than two years and markets do not expect a rate
hike until the fourth quarter of 2013.

GUIDANCE NEVER A PROMISE

Carney dedicated most of his speech to explaining why he is
opposed to providing explicit guidance to financial markets on
the future path of interest rates except in extraordinary
circumstances.

The analysis comes after he confused markets in October with
less-than-clear statements, leading some to believe the bank had
hardened its rate-hike view when in fact it was trying to say
that rate hikes were now “less imminent”.

A better approach is to be transparent in what economic
factors the bank takes into account when setting rates, rather
than using stock phrases or code words that markets come to rely
on for guidance.

“This guidance is never a promise, however. Actual policy
will always respond to the economic and financial outlook as it
evolves. Market expectations should do the same, reflecting
differences in perspectives amid a common understanding our
objective,” he said.

Sandy, one of the biggest storms to ever hit the country,
left at least 30 people dead and caused significant power
disruptions, though some market players had expected even more
devastation.

“It’s a pretty broad-based move,” Elvis Picardo, strategist
and vice president of research at Global Securities in
Vancouver, said of the market’s rise. “It reflects some relief
that the storm hasn’t caused as much damage as people had
expected.”

After opening lower, the Toronto Stock Exchange’s S&P/TSX
composite index ended the day up 64.30 points, or 0.52
percent, at 12,377.05.

The index touched a one-week high of 12,395.43, while all
but one of the 10 main index subgroups were positive.

Financials, which make up nearly one-third of the index,
rose 0.44 percent, led by insurer Manulife Financial,
up 1.1 percent at C$12.27.

After markets closed, Manulife said its exposure to Sandy
was manageable and within its risk tolerance.

Materials stocks rose 1 percent rise. Yamana Gold
gained 3.8 percent at C$19.48, after the gold miner maintained
its production outlook for the year and said its development
projects are on time and on budget.

Smaller gold mining rival Osisko Mining climbed 4.2
percent to C$9.61.

ENERGY STOCKS CLIMB

The energy subgroup, one of the index’s largest sectors,
gained 0.36 percent, despite a sharp decline near the close.
Investors bought energy shares even though Brent crude prices
fell.

Encana Corp rose 1.4 percent to C$23.15, while
Canadian Oil Sands Ltd climbed 2.9 percent to C$21.20
after the company posted a 40 percent rise in third-quarter
profit.

However, the Canadian market felt the effect of the closure
of U.S. stock markets for a second straight day, with trading
volumes light.

“The disruption caused by the storm with the closure of the
financial markets in the United States is having the major
effect,” said Gavin Graham, president of Graham Investment
Strategy. “Given how lackluster the trading is, how low the
volumes are, people are very reluctant to take positions.”

Despite a late surge in trading volume, activity on the
Toronto exchange was a sparse 178.3 million, versus the 356.4
million daily average in September, the last complete month of
statistics provided by the exchange.

Among individual movers, engine developer Westport
Innovations plunged 14.4 percent to C$24.19 a day after
it cut its full-year revenue growth forecast to about 30 percent
from 50 percent.

Sandy, one of the biggest storms to ever hit the country,
left at least 18 people dead and caused significant power
disruptions, though some market players had expected even more
devastation.

“It’s a pretty broad-based move. It reflects some relief
that the storm hasn’t caused as much damage as people had
expected,” said Elvis Picardo, strategist and vice president of
research at Global Securities in Vancouver.

After opening lower, the Toronto Stock Exchange’s S&P/TSX
composite index was up 66.61 points, or 0.54 percent,
at 12,379.36 by midafternoon.

The index at one point hit 12,390.48, its highest level
since Oct. 23. All the ten main subgroups within the index were
positive.

Financials, up 0.6 percent, played the biggest role of any
sector in lifting the market, led by Royal Bank of Canada
, up 0.85 percent to C$56.83.

Materials stocks were up 0.9 percent, helped by gains in
gold companies. Goldcorp Inc was up 1.5 percent at
C$45.32. Barrick Gold Corp rose 1.29 percent
to C$40.11.

Yamana Gold Inc shares rose more than 3 percent
after the miner on Monday reported results, maintained its
production outlook for the year and said its development
projects are on time and on budget.

ENERGY STOCKS CLIMB

Some energy stocks were also among the biggest gainers.

Suncor Energy Inc was up 1.51 percent at C$33.60,
playing the biggest role of any one stock in leading the market
higher.

Canadian Oil Sands Ltd also supported the move
higher. Its shares were up 3 percent at C$21.19 after the
company posted a 40 percent rise in third-quarter profit.

The energy sub group, one of the biggest on the index, was
up 0.74 percent. Investors bought energy shares even though
Brent crude prices fell.

“It’s a reminder that stuff happens, whether it is an act of
God like Hurricane Sandy or Katrina, or alternatively political
uncertainty like the Iranian situation in the Persian Gulf,”
said Gavin Graham, president of Graham Investment Strategy.

However, the Canadian market felt the effect of the closure
of U.S. stock markets for the second straight day as trading
volumes were light.

“The disruption caused by the storm with the closure of the
financial markets in the United States is having the major
effect,” Graham said. “Given how lackluster the trading is, how
low the volumes are, people are very reluctant to take
positions.”

By mid-afternoon, volume on the Toronto exchange was a
sparse 74 million, versus the 356.4 million daily average in
September, the last complete month of statistics provided by the
exchange.

Sandy, one of the biggest storms to ever hit the country,
left at least 15 people dead and caused significant power
disruptions, though some market players had expected even more
devastation.

The Canadian market felt the effect of the closure of U.S.
stock markets for the second straight day, with trading volumes
well below average.

“The disruption caused by the storm with the closure of the
financial markets in the United States is having the major
effect,” said Gavin Graham, president of Graham Investment
Strategy.

“Given how lackluster the trading is, how low the volumes
are, people are very reluctant to take positions,” he said.

Volume on the Toronto Stock Exchange was light at about 16
million shares, just over half of Friday’s 30 million shares
traded around the same time.

Some energy stocks were among the biggest gainers.

Suncor Energy Inc was up 1.51 percent at C$33.60,
while Canadian Natural Resources Ltd. rose 2 percent at
C$30.38, playing the biggest role of any two companies in
leading the market higher.

The energy sub group, one of the biggest on the index, was
up 0.64 percent even though Brent crude prices fell.

“It’s a reminder that stuff happens, whether it is an act of
God like Hurricane Sandy or Katrina, or alternatively political
uncertainty like the Iranian situation in the Persian Gulf,”
Graham said.

Financials, up 0.44 percent, played the biggest role of any
sector in lifting the market, led by Royal Bank of Canada
, up 0.75 percent to C$56.77.

Materials stocks were up 0.63 percent, helped by gains in
gold companies. Barrick Gold rose 1 percent to C$39.99.

At midmorning, the Toronto Stock Exchange’s S&P/TSX
composite index was up 69.19 points, or 0.56 percent,
at 12,381.94. All the ten main groups within the index were
positive.

Goldcorp, Canada’s second-biggest gold miner, posted a 48
percent rise in quarterly profit, sending its shares up 4.9
percent to C$42.78. It was the most heavily weighted riser on
the index.

Its results helped boost the index’s materials group, which
was up 1.76 percent. The energy group rose nearly 0.75 percent,
and financials were up 0.59 percent. Together the three sectors
make up nearly 75 percent of the index’s weight.

The better-than-expected economic data pushed up commodity
prices. Brent crude oil was up around $109 a barrel. Gold
prices rose as well, off seven-week lows hit on Wednesday.
[ID: nL5E8LPG3M]

The market’s rise was as much a reflection of higher gold
prices as of Goldcorp’s results, said Craig Fehr, Canadian
market strategist at Edward Jones. “The rise in gold prices is
helping companies like Goldcorp.”

Barrick Gold, Canada’s biggest gold miner, was up
2.45 percent at C$39.28.

The Toronto Stock Exchange’s S&P/TSX composite index
broke a four-day skid, climbing 122.56 points, or 0.92
percent, to 12,307.58. All 10 of the index’s main groups were
higher.

“It’s a rebound in markets across the board. Investors are
taking a pause, making some profits in some areas and trying to
gauge the next move in the market,” said Philip Petursson of the
portfolio advisory group at Manulife Asset Management.

Positive economic data from Britain, China and a commitment
by the U.S. Federal Reserve to stick with its stimulative
monetary policy all helped support shares. [ID: nL5E8LP3ZY]

Britain’s recession ended in the third quarter as the London
Olympics boosted quarterly GDP growth to the strongest level in
five years, official data showed. [ID: nL5E8LP6AS]

“I don’t think there is a bubble, or a danger of a bubble in
Toronto and Vancouver. I’m actually comfortable with the fact
that we’ve seen some moderation in pressures in that market,
both of those markets and across the country,” Flaherty told
reporters.

“I hope the market will discipline itself … Some
modification is better than having some sort of hard landing.”

Mindful of the U.S. housing market crash that triggered the
global financial crisis, Flaherty in June tightened rules on
government-backed mortgages for the fourth time in four years.

Industry reports released on Wednesday showed Canada’s
post-recession property boom is displaying fresh signs of
weakness due in part to the mortgage-rule changes, with sales
volumes dropping even as average prices rise.

In Vancouver, Canada’s most expensive market, average prices
posted modest decreases in the third quarter, particularly for
condos.

In Toronto, average house price gains ranged from 2.7
percent to 5.9 percent, while demand fell modestly.