Source: The Canadian Press

The Toronto stock market moved higher in late trading Tuesday to close with a good-sized gain, as commodities strengthened and jittery investors dipped their toes back into a volatile market.

The S&P/TSX composite index was ahead 86.41 points at 11,629.88.

The Canadian dollar saw a boost following a morning announcement by the central bank that it will hike its trendsetting interest rate a quarter point to 0.75%. The loonie was up 0.91 cent to 95.71 cents U.S.

The second rate increase in as many months had been widely expected by economists and markets, given Canada’s strong first-quarter GDP growth and recent job creation record.

However, in a statement accompanying the announcement, the central bank’s governing council said the economy’s growth is slowing. The council said growth will be two-tenths of a point lower both this year and next — at 3.5% and 2.9% respectively — than it had thought in April.

And it said that rather than returning to full capacity in the spring of 2011, the Canadian economy won’t be up to speed until the end of next year — two full quarters later.

“The key point is nothing’s pre-ordained here. The bank is not necessarily committed to raising rates at the next meeting in September or beyond,” said Sal Guatieri, senior economist with BMO Capital Markets.

However, the market didn’t seem swayed by the more pessimistic outlook.

Juliette John, a portfolio manager at Bissett Investment Management in Calgary, said this was because downward revisions in economic forecasts around the world prepared Canadian investors for a similar move.

“I don’t think it’s much of a surprise. I think the downward move is in keeping with what we can observe going on around the world,” John said.

The TSX base metals sector was the biggest gainer Tuesday, rising 2.5% as the September copper contract on the New York Mercantile Exchange added 6.35 cents to US$3 a pound. Shares in Teck Resources (TSX:TCK.B) jumped $1.22 or 3.7% to C$34.31.

The energy sector added 1.1% as the August crude contract on the Nymex gained 90 cents to US$77.44 a barrel and the September contract was up 68 cents to $77.58. Shares in Encana Corp. (TSX:ECA) added 74 cents or 2.2% to C$34.49.

The gold sector rose 1% as the August bullion contract added $9.80 to US$1,191.70 an ounce. Shares in Barrick Gold Corp. (TSX:ABX) were up 31 cents to C$43.72.

Financials inched up 0.1% after Wall Street giant Goldman Sachs Group Inc. (NYSE:GS) reported lower trading revenue and an 83% drop in net income. Shares in Royal Bank of Canada (TSX:RY) lost nine cents to C$53.54.

The TSX Venture Exchange added 0.9 point to 1,363.09.

New York markets also closed in positive territory after trading in the red earlier in the session. The Dow Jones industrial average added 75.53 points to 10,229.96. The Nasdaq composite index was up 24.26 points at 2,222.49 while the S&P 500 index gained 12.23 points to 1,083.48.

The gains came despite a key report on the U.S. housing market that showed the economy remains weak. Construction of new homes and apartments in June dropped 5% to a seasonally adjusted annual rate of 549,000, the lowest level since October, according to the U.S. Commerce Department.

Some disappointing quarterly revenues also weighed on markets.

Johnson & Johnson’s (NYSE:JNJ) revenue missed expectations following drug recalls, and IBM Corp. (NYSE:IBM) said it signed fewer services contracts. Investors have been focusing on revenue rather than earnings because of the link between companies’ sales and the economy. If revenue is down because consumers aren’t spending, that’s a sign that the economy will remain weak for some time.

“There has been very little with respect to revenue growth, and even the companies have been more modest in their outlook for the second half of the year,” John said.

“It’s a sign of what (Bank of Canada governor Mark) Carney said, how the growth rates are going to be lower.”

But the earnings news wasn’t all bad, and that likely contributed to stocks’ move higher later in the day.

PepsiCo Inc.’s (NYSE:PEP) revenues jumped 40% thanks to a deal to buy out its two biggest bottlers, which was showing signs of paying off for the company’s U.S. drinks business. Excluding currency fluctuations, Pepsi’s earnings per share came in ahead of analysts’ expectations.

In Canadian corporate news, Bombardier Inc. (TSX:BBD.B) announced at the Farnborough Airshow in Britain that several customers have ordered a total of 10 jets worth more than US$600 million. Shares in Bombardier were up 22 cents or 5% at C$4.65.

Air Canada (TSX:AC.A) announced that it will grow its system capacity more aggressively this year than previously expected and disclosed a plan to refinance its debt. Canada’s largest airline now expects to boost its overall fleet capacity by between 6% and 7.5% this year. The company also announced a US$900-million note offering to repay some of its outstanding debt. Shares in the airline jumped 25 cents or 13.1% to $2.16.