Source: The Canadian Press

The Toronto stock market headed for a positive open Tuesday amid signs of easing tensions on the Korean peninsula while investors took in major dealmaking in the Canadian financial sector.

TD Bank (TSX:TD) is buying Chrysler Financial from U.S. private equity firm Cerberus Capital for $6.3 billion. The bank says the move will allow it to further invest in the North American auto lending market, which will help it grow its consumer loan portfolio.

Investors have been watching North Korea’s apparent decision to avoid confrontation with South Korea despite accusing it of being “reckless” with its military drills.

“The easing of tension on the Korean peninsula has helped support risk assets,” said Jane Foley, an analyst at Rabobank International.

The Canadian dollar lost ground as the greenback gained against other currencies after Portugal became the latest European country to be warned of a possible credit rating downgrade. The loonie was down 0.31 to 98.08 cents US.

The dollar also declined amid data showing that inflation remains very tame in Canada. Statistics Canada reported that Canada’s annual inflation rate rose to an annualized rate of 2% in November, down from 2.4% in October.

“This docile report will quell talk of a rate hike by the Bank of Canada in early 2011, especially in combination with the meagre 1% gross domestic product growth seen in Q3,” said BMO Capital Markets deputy chief economist Doug Porter.

U.S. futures pointed to a positive open with the Dow Jones futures ahead 36 point to 11,440, the Nasdaq futures gained seven points to 2,227 and the S&P 500 futures were up 4.5 points to 1,246.

The U.S. dollar advanced after ratings agency Moody’s Investors Service warned Tuesday it could downgrade Portugal’s public debt. It cited uncertain economic growth amid the nation’s austerity drive, the high cost of borrowing on global markets and worries about the banking sector.

Moody’s said Portugal’s sovereign credit rating could be lowered a notch or two from A1.

The agency last week slashed Ireland’s rating by five notches and also warned Spain and Greece of possible downgrades.

The February crude contact on the New York Mercantile Exchange was unchanged at US$89.37 a barrel.

The February gold contract on the Nymex gained 70 cents to US$1,386.80 an ounce while the March copper contract in new York added six cents to US$4.26 a pound.

Earlier in Asia, Japan’s Nikkei 225 stock average closed up 1.5% after the Bank of Japan kept monetary policy unchanged at the current super loose setting.

Hong Kong’s Hang Seng index added 1.6%, South Korea’s Kospi advanced 0.8% and Australia’s S&P/ASX 200 gained 0.8%. China’s Shanghai Composite Index jumped 1.8% to 2,904.11.

London’s FTSE 100 index rose 0.78%, Frankfurt’s DAX gained 0.63% and the Paris CAC 40 climbed 0.7%.