Source: The Canadian Press

The Toronto stock market headed for a higher open Monday with investors feeling better about the economic rebound following China’s decision to allow its currency to appreciate against the U.S. dollar.

The Canadian dollar moved up 0.45 of a cent to 98.37 cents US.

U.S. futures ran ahead sharply following China’s announcement with the Dow Jones industrial futures up 131 points to 10,504, the Nasdaq futures gained 28.75 points to 1,938.25 while the S&P 500 futures were ahead 16.5 points to 1,126.7.

China currently keeps the yuan artificially low to boost exports. That gives China an edge in selling cheaper exports to other countries but it also makes it difficult for its own consumers to buy foreign goods.

Also, the threat of inflation to China should be reduced by the change in currency policy, easing investors’ worries that interest rates could be hiked to cool off the economy.

“Market players saw the announcement as a sign that Chinese authorities are confident in China’s economic growth,” said Kazuhiro Takahashi, equity strategist at Daiwa SMBC Securities Co. Ltd.

However, experts also noted that any reform to China’s currency policy would be gradual.

“Stability appears to be the name of the game,” said Mitul Kotecha, currency analyst at Credit Agricole.

Commodity prices also racked up solid gains with the July crude contract on the New York Mercantile Exchange ahead $1.20 to US$78.38 a barrel as China’s move to end its two-year peg to the greenback raised confidence that oil demand will rise.

The August bullion contract on the Nymex advanced $4.40 to US$1,262.70 an ounce, while the July copper contract in New York climbed 13 cents to US$3.01 a pound.

Meanwhile, investors will continue to gauge developments in Europe’s debt crisis. Markets were buoyed last week after Spain saw strong demand for a bond sale, Greece reportedly was exceeding its budget-cutting targets and the EU agreed to publish bank stress test results.

A more positive outlook for the European debt crisis helped send North American markets higher again last week with the TSX’s main index ahead 2.5% while the Dow industrials rose 2.34%.

In Asia, Japan’s benchmark Nikkei 225 stock index ended 2.4% higher, Hong Kong’s Hang Seng index climbed 3.1% while China’s Shanghai Composite Index added 2.8%.

London’s FTSE 100 index climbed 1.04%, Frankfurt’s DAX was up 1.48% and the Paris CAC 40 gained 1.49%.

Investors also took in some major dealmaking in Canada’s drug sector that will see Biovail Corp. (TSX:BVF) merge with California-based Valeant Pharmaceuticals International (NYSE:VRX) in a deal that offers shareholders of the U.S. company about US$3.2 billion worth of cash and stock. The combined company will be called Valeant Pharmaceuticals International Inc. but Biovail’s current shareholders will own slightly more than half of all the stock and the corporate headquarters will be in Mississauga, Ont., where Biovail is based.