CANADA STOCKS-TSX on track for biggest annual gain since 2021

There will be no Canada equities report on Jan. 1; Reuters will resume coverage on Jan. 2

Updates after markets open

By Ragini Mathur

Dec 31 (Reuters) - Canada's main stock index inched higher in the final trading session of the year, a day considered historically favorable for equities, on a boost by energy stocks.

The S&P/TSX composite index .GSPTSE was up 84.04 points, or 0.34%, at 24,704.63.

The index is set for a drop in December, its first in six months and its worst since May 2023, as the U.S. Federal Reserve's hawkish policy announcement and domestic political uncertainty made investors cautious.

The commodity-heavy index, however, benefited on the day as the energy sector .SPTTEN gained 1%, tracking oil prices higher after data indicated an expansion in China's manufacturing activity. O/R

Most sectors inched higher, with communication services .GSPTTTS in the lead with a 1.4% gain. The sector, however, is set to lag its peers with an over 20% yearly decline.

Information technology .SPTTTK, though in the red, was poised to outperform other sectors on the index this year.

"History tells us that the last day before the end of the year would be a positive" said Allan Small, senior investment advisor at Allan Small Financial Group with iA Private Wealth.

Policy easing by major central banks fueled a substantial wave of stock purchases this year, positioning the benchmark index for its best annual performance since 2021.

As the year concludes, market participants have scaled back their expectations for significant rate cuts by the Fed in 2025 and are preparing for potential policy shifts with Donald Trump's return to the White House.

"Donald Trump measures his success based on stock market performance... and in saying that, when the U.S. markets do well, Canada usually follows," said Small.

Most markets across the globe, including Canada, will be closed on Wednesday on account of the New Year holiday.

Looking ahead, investors will focus on upcoming monthly employment data from Canada and the United States, which will offer insights into the monetary policy direction in both countries.

(Reporting by Ragini Mathur in Bengaluru; Editing by Shreya Biswas)

((Ragini.mathur@thomsonreuters.com;))