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at the bell

U.S. Federal Reserve Chairman Ben BernankeJASON REED

Third-quarter earnings results, intergovernment currency talks and some big economic data will take centre stage this week, but the main market driver remains the widespread expectation that the U.S. Federal Reserve will backstop investors by pumping as much as $1-trillion (U.S.) into the financial system.

Like an anabolic steroid priming muscle growth, the financial stimulus is enhancing stock market performance in the short run, and smart investors have seen an opportunity to add risk to their portfolios. But the long-term results are unpredictable.

The Fed's second bout of "quantitative easing" will aim to lower long-term interest rates, thereby discouraging savings and stimulating demand. It is also likely to increase banks' reserves for lending to businesses.

No one knows for certain what will happen as the financial injection filters through the wider economy. For now, though, the prospect of the Fed's stimulant is propping up both bond and stock markets.

"It's play today and pay tomorrow," says William De Vijlder, BNP Paribas Investment Partners' chief investment officer for alternative investments. "Quantitative easing is a sign of economic weakness that calls for exceptional measures whose effectiveness is not proven."

The investment firm, one of the largest in Europe with €533-billion ($762.7-billion) under management, remains cautious about stocks as a result.

One of the reasons to be dubious about the effectiveness of further stimulus from the Fed is that it aims to prod people to spend without actually giving them new reason to be confident about the future. If the boost doesn't ignite the economy, most of the new money will go right back into bonds and bank accounts.

The rush of month-end economic data this week will give a clearer read on the level of economic weakness that the Fed is confronting. Resale home figures will be released Monday in the United States. Economists expect sales to grow 3.3 per cent, a trend complicated by the halt in the foreclosure process. A lack of clarity about the legality of many foreclosures could keep many buyers on the sidelines, writes BMO Nesbitt Burns senior economist Jennifer Lee, noting that there could be another two million foreclosed homes waiting to come on the market.

On Wednesday, the U.S. Commerce Department publishes durable goods orders for September. Expect very marginal gains once aircraft are removed from the mix. Friday morning, the U.S. releases an advance estimate of gross domestic product for the third quarter. This is one of the most closely watched figures of the month. Consensus is for 2.2 per cent annualized growth, representing the fifth successive quarter of expansion since the recession ended. However, consumer consumption and business investment are likely to be weak, which bodes poorly for job growth. The Canadian monthly GDP figure for September, slated for Friday, is expected to rise 0.3 per cent after shrinking 0.1 per cent in August.

Canadian National Railway Co., Teck Resources Ltd. and Rogers Communications Inc. post third-quarter results Tuesday, putting Canadian earnings season into full swing. In the U.S., one-third of the companies comprising the S&P 500 index have already reported, with about 80 per cent topping profit estimates, compared with 75 per cent in the second quarter. But the number posting better-than-expected revenue figures is only about 40 per cent, suggesting that companies are still fighting a lacklustre economy.

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