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JOHN HEINZL

Thursday, March 16, 2006

The Ides of March may have been particularly unkind to Julius Caesar, but investors were the ones making a killing yesterday.

North American stock markets rang in March 15 with a broad-based rally, as positive earnings surprises overshadowed concerns about rising interest rates and fresh signs of a slowdown in the U.S. housing market.

In Canada, the S&P/TSX composite index posted its fifth consecutive gain, marking the longest winning streak in 2006. The benchmark rose 82.38 points to 12,055.63 and is now within 25 points of its record close of 12,080.53 on Feb. 8.

Planes, trains and BlackBerrys all figured prominently in yesterday's advance. Vacation operator Transat A.T. rose 8.8 per cent for the biggest jump on the S&P/TSX after surprising investors with a first-quarter profit of $5.2-million or 13 cents a share. Analysts polled by Thomson Financial had expected a loss.

Research In Motion soared 6.3 per cent as investors bet that last week's settlement of a patent dispute will open the sales floodgates for the company's BlackBerry e-mail device. Heavily-weighted RIM was the biggest contributor to the S&P/TSX's advance, accounting for nearly 11 index points.

In the United States, an improving profit outlook helped send indexes to their fourth win in a row.

Among the biggest gainers was railway operator Union Pacific, which leaped nearly 6 per cent after raising its first-quarter profit forecast, citing higher shipping volumes and better margins. Other railroads went along for the ride, with Canadian National Railway up 2.2 per cent and Canadian Pacific Railway 1.9 per cent.

Shares of DuPont rallied 2.3 per cent after the chemical maker lifted its first-quarter profit outlook. Investors also got a pleasant surprise from Sears Holdings, which rocketed 12.8 per cent after the largest U.S. operator of department stores posted a fourth-quarter profit of $4.03 a share, well ahead of the average estimate of $3.68, citing cost controls and a turnaround at its Kmart division.

Sears was the biggest gainer on the S&P, which added 5.54 points to 1,303.02. The Dow Jones industrial average rose 58.43 points to 11,209.77. Both indexes are at their highest since May, 2001.

U..S. housing confidence dips

U.S. homeowners aren't the only ones feeling the pinch of a housing slowdown. Home builders are starting to get depressed, too.

Confidence among builders slipped to a three-year low in March, as measured by the National Association of Home Builders index published yesterday.

"Rising interest rates and high rates of home-price appreciation have raised the bar for home ownership to beyond what some families can reach," said NAHB chief economist David Seiders.

Moreover, short-term investors -- who flip properties in the hope of making a quick profit -- have retreated from certain markets, further softening demand.

The index of builder confidence fell to 55 in March from 56 in February. As recently as June of 2005, it was as high as 72.

The NAHB tried to put the best face on the data, noting that a reading of more than 50 indicates more builders view the outlook for sales as good than poor. Rather than characterizing the market as a bubble that's bursting, Mr. Seiders referred to it as a "predicted and orderly cooling process."

But the mounting signs of a slowdown are impossible to ignore.

In January, sales of new homes fell 5 per cent to the slowest pace in a year, while the backlog of unsold properties hit a record. The drop came during a month when the thermometer soared to a record in many parts of the country, which would normally have brought out throngs of eager home buyers.

Also in January, sales of existing U.S. homes slumped 2.8 per cent -- the fifth consecutive drop -- to a two-year low, while the number of unsold homes rose to the highest in more than seven years.

Buyers are retreating as rising mortgage rates make home ownership less affordable. The average rate on a 30-year mortgage is now about 6.4 per cent, the highest in nearly four years.

jheinzl@globeandmail.com

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