Source: The Canadian Press

Stock markets appeared set to climb Wednesday after a successful bond auction in Portugal helped to mitigate investors’ fears about the health of European government debt.

Markets on both sides of the border were expected to be lower Tuesday after reports said European banks may have more potentially risky government debt on their books than was disclosed during stress tests earlier this year.

That snapped an eight-day rally on the Toronto stock market and a four-day rally in the U.S., where investor optimism grew following upbeat reports on employment and manufacturing on both sides of the border.

The Canadian dollar added 0.22 of a cent to 95.64 cents US after the Bank of Canada announced that it will raise its key lending rate by a quarter point to one per cent – its highest level since January 2009.

The October crude contract on the New York Mercantile Exchange slipped 21 cents to US$73.88 a barrel. The price of oil continued to be pressured by Tuesday’s stock market weakness ahead of Wednesday’s open.

The December gold contract lost $3.60 to US$1,255.70 an ounce after hitting an all-time high of $1,259.30 at the close of trading Tuesday.

Strong demand at an auction for Portugal’s debt early Wednesday helped push U.S. stock market futures higher.

Futures on the S&P 500 added 2.2 points to 1,093.40, while Dow Jones industrial average futures gained 18 points to 10,356. On the Nasdaq, futures were up six points to 1,863.50 ahead of the opening bell.

A report due out Wednesday afternoon from the Federal Reserve could provide further insight into the pace of the U.S. recovery. The Fed’s “beige book” report will break down economic activity across the country by region.

The Fed has been cautious in its statements about the economy in recent months. Any signs of encouragement from the central bank could be considered further confirmation of last week’s economic reports and restart the rally.

In Canadian economic news, Statistics Canada reported that municipalities issued building permits worth $6.4 billion in July, down 3.3% from June but 33% higher than in July 2009.

The agency blamed the monthly drop on declines in both the residential and non-residential sectors.

Britain’s FTSE 100 rose 0.2%, Germany’s DAX index gained 0.3%, and France’s CAC-40 rose 0.4%. Japan’s Nikkei stock average fell 2.2%, while Hong Kong’s Hang Seng index lost 1.5%.