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Canada’s main stock index edged higher on Monday, extending its recovery from a near two-month low, as energy and financial shares gained ground after a deal was reached in Washington that could enable the U.S. to avoid defaulting on its debt.

The S&P/TSX composite index ended up 47.64 points, or 0.2%, at 19,967.95, after posting on Thursday its lowest closing level since March 28.

Trading volume was lighter than normal with U.S. markets closed for Memorial Day. Markets in the UK and several European countries were also closed on Monday.

Democratic President Joe Biden and Republican House of Representatives Speaker Kevin McCarthy on Sunday signed off on an agreement to temporarily suspend the debt ceiling and cap some federal spending.

“There’s some optimism of reaching agreement on the debt ceiling,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown. “But focus has returned to what’s going to happen given inflation is still stubborn, worries about a hard landing in the U.S., and the impact of the European Central Bank’s expected rate hikes on euro zone economies.”

Analysts also pointed out that the deal still has to pass votes in the House perhaps on Wednesday, and then the Senate. However, a clearer reaction will kick in when U.S. and UK markets reopen.

“While the White House’s debt ceiling agreement is great news, the U.S. government still has a cash flow problem and time is of the essence to finalize the agreements,” said Bob Stark, global head of market strategy for Kyriba in Vancouver. The debt ceiling agreement is only the first step in saving the government from the brink of illiquidity.”

“Markets already priced in that an agreement would be made this weekend. What investors will now focus on is the cost of the spending cuts to the health of the American economy. How much impact will these spending cuts have on GDP and economic growth?”

The heavily-weighted TSX financials group rose 0.4%, clawing back some of the losses from last week when some major banks disappointed with their corporate earnings.

Monday’s gains were led by Canadian Western Bank. It rallied 5.5%.

Energy was up 0.7% as the price of oil rose 0.5%.

Among the sectors that lost ground was consumer discretionary. It was down 0.5%.

European shares edged lower in light trade on losses in technology and bank stocks, while investors assessed the tentative deal reached by U.S. lawmakers to raise the nation’s debt ceiling and avert a default.

The pan-European STOXX 600 index closed 0.1% lower, after logging its strongest one-day gain in nearly two months on Friday.

Reuters, Globe staff

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