Toronto's S&P/TSX composite index closed up 232 points to 13531, the Dow Jones industrial average closed up 90 points to 11503, the S&P 500 closed up 10 points to 1282 and the Nasdaq closed up 20 points to 2382.

U.S. equity futures were pointing to a negative day until economic data showed consumers were buying more long-lasting goods. Orders for durable goods excluding transportation increased 0.7% in July despite forecasts for a 0.7% decline. Non-defense capital goods excluding aircraft rose 2.6% following a 1.3% rise in the previous month.

"The sector's relatively stable development is among the best arguments for the expectation that the U.S. may be spared a deep recession," wrote economist Bernd Weidensteiner from Commerzbank.

Canadian stocks, and the Canadian dollar, were boosted by a commodity rally. Energy prices rose after forecasts for Tropical Storm Gustav predicted the storm will disrupt production in the Gulf of Mexico.

The U.S. National Hurricane Center downgraded Gustav to a tropical storm, but its forecasts predict it will regain strength and grow into a major hurricane in the coming days. WTI crude oil was up $1.88 to $118.15.

The Canadian dollar was up 0.0022 to 0.9557 against the U.S. dollar ( 1.0463 USD/CAD) and up 0.09 to 104.63 against the yen.

The U.S. dollar was down 0.12 to 109.48 against the yen and the Dollar Index was down 0.278 to 76.973.

The euro was up 0.0083 to 1.4738 against the U.S. dollar, up 0.0055 to 1.5420 against the Canadian dollar, up 0.0061 to 0.8026 against the pound sterling and was higher by 0.72 to 161.34 against the yen.

The pound sterling was down 0.0042 to 1.8359 against the U.S. dollar and down 0.0082 to 1.9212 against the Canadian dollar.

Treasury market participants were focused on a $32 billion two-year U.S. government debt auction. It was the largest-ever monthly auction for U.S. two-year debt and produced a 2.38% stop-out rate compared to 2.37% in the market at the same time.

"After selling off early in the morning in what was a tease for a 2-yr auction concession, the market managed a grinding gain with the curve steepening in the process," wrote David Ader, U.S. government bond strategist at RBS Greenwich Capital.

U.S. two-year yields were down 4.2 bps to 2.28%, with five-year yields down 2.7 bps to 3.01%, 10-year yields down 1.1 bps to 3.76% and 30-year yields flat at 4.38%. The Eurodollar March 09 contract was up 8.0 ticks to 97.10. The yield curve was steeper, with the 10/2-year spread up 3.6 bps to 148.08 bps.

"It's an illiquid market," said T.J. Marta, fixed income strategist at RBC Capital Markets. "The reality is there isn't a lot of business getting done."

Yields on two-year Canadian government bonds were down 8.1 bps to 2.75%, with five-year yields down 5.7 bps to 3.03%, 10-year yields down 1.4 bps to 3.53% and 30-year yields flat at 4.01%. The December 08 BAX contract was up 9.0 ticks to 97.10.

In Germany, returns on two-year German bonds were up 9.9 bps to 4.09%, with five-year yields up 9.3 bps to 4.05%, 10-year yields up 6.0 bps to 4.17% and 30-year yields up 2.8 bps to 4.61%.

Yields on UK two-year bonds were up 2.4 bps to 4.52%, with five-year yields up 1.9 bps to 4.45%, 10-year yields up 1.1 bps to 4.51% and 30-year yields up 0.6 bps to 4.40%.

European stock markets closed in mixed territory with the Eurostoxx up 7 points to 2869, the UK FTSE 100 up 57 points to 5528 and the German DAX down 19 points to 6321.

All data taken at 4:38 p.m. EDT.

By Adam Button, This email address is being protected from spam bots, you need Javascript enabled to view it , edited by Sarah Sussman, This email address is being protected from spam bots, you need Javascript enabled to view it

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