TSX ends modestly higher on US inflation relief

By Maiya Keidan

TORONTO (Reuters) - Canada's main stock index extended gains on Wednesday after fresh gross domestic product (GDP) numbers out of the U.S. were revised down from original expectations, potentially leading to a pause in rate hikes in September.

The Toronto Stock Exchange's S&P/TSX composite index closed up 39.91 points, or 0.2%, at 20,330.32 on Wednesday, after hitting its highest point since Aug. 14.

The S&P 500 and Nasdaq rose on Wednesday after data showed the U.S. economy expanded by 2.1% in the second quarter, below a preliminary estimate of 2.4%.

"We know that the Federal Reserve is going to take a slowing economy in to account when it comes to figuring out if it wants to raise rates," said Barry Schwartz, a portfolio manager at Baskin Financial Services.

"I wouldn't say euphoria but good vibes from dropping bond yields and markets anticipating that we're at the end of the rate hike cycle."

Energy stocks, which constitute about 20% of the benchmark index, climbed 0.6% as investors digested Hurricane Idalia's path and its effect on fuel demand, while U.S. data showing tighter-than-expected supplies of crude limited losses.

Heavily weighted financial stocks gained 0.1% after National Bank of Canada missed quarterly profit estimates and shares fell more than 2.5%.

National Bank of Canada follows on the heels of Toronto-Dominion Bank, Bank of Nova Scotia and Bank of Montreal missing third-quarter profit estimates on higher loan provisions and analysts say the trend will continue.

But Schwartz noted financial stocks were up on Wednesday after the GDP data.

"Everybody thought rising interest rates would be good for financials but then they rose too much and now we're going to cheer that they're going to hopefully start to come down," he said.

"That would be great for financials because it can encourage more loan growth and mortgages and may also be better for the consumer."

The materials sector, which includes miners and fertilizer companies, and utilities stocks were both in the red on Wednesday, down 0.2% and 0.8%, respectively.

(Reporting by Maiya Keidan in Toronto; Editing by Matthew Lewis)