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Stock markets climb amid Fed minutes that show U.S. stimulus will stop in October

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TORONTO - North American markets rallied Wednesday as minutes from the latest meeting of the Federal Reserve indicated that the U.S. central bank plans to end its massive bond buyback program in October and that it remains in no hurry to raise interest rates.

The S&P/TSX composite index rose 78.01 points at 15,215.19, with strength from most sectors, particularly gold and tech stocks.

The Canadian dollar was up 0.15 of a cent at 93.81 cents US.

On Wall Street, U.S. markets were also higher following two days of losses. The Dow Jones industrials gained 78.99 points to 16,985.61, the Nasdaq climbed 27.57 points to 4,419.03 and the S&P 500 was up 9.12 points at 1,972.83.

Minutes from the Fed's June meeting showed that officials disagreed over how to signal financial markets when it might raise a key short-term interest rate.

Some officials had wanted to express worries over the slow rise in inflation, while other were more concerned that the economy might rebound faster than expected. In the end, the Fed statement stuck to current guidance that rates will likely remain low for a "considerable time" after its bond- purchase program ends in October.

The Fed has been steadily tapering its $85-billion of monthly bond purchases by US$10 billion at each meeting this year, with the program now sitting at US$35 billion for July. The stimulus has helped propped up stock markets.

With the minutes containing no major surprises, most observers agree that markets will likely be more interested in the next Fed meeting on July 30 to see how the bank reacts to June's strong U.S. job numbers.

"We have a pretty good balance of economic recovery that's not happening too quickly," said Kash Pashootan, vice-president and portfolio manager at First Avenue Advisory in Ottawa, a Raymond James company.

"If things start to recover at a faster pace then there will be a higher probable chance of interest rates going up. There is no real motive right now or need for any drastic action from the Fed."

Meanwhile, Ottawa is setting up a new national securities regulator now that four provinces — Saskatchewan, New Brunswick, Ontario and British Columbia — have agreed to sign on. These provinces represent about 53 per cent of the value of Canadian capital markets.

The federal government has long called for the creation of a national securities body, arguing that financial markets should be policed by one entity instead of the current patchwork of 13 regulators. The new office is expected to be operational by the fall of 2015. Shares of the TMX Group, the operator of the Toronto Stock Exchange, climbed 0.35 per cent or 20 cents to $56.97.

Company earnings are expected to be the biggest driver in markets over the coming weeks as investors look for signs that the strengthening in both the Canadian and U.S. economy has translated into higher sales and profits. Many Canadian companies will be reporting their second-quarter earnings this month and into August.

Commodity markets were mixed, as the August crude contract on the New York Mercantile Exchange fell $1.11 to US$102.29 a barrel. August gold bullion was up $7.80 to US$1,324.30 an ounce, while September copper was down a penny at US$3.25 a pound.

Follow @LindaNguyenTO on Twitter.

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