CANADA STOCKS-Energy shares boost TSX as investors digest inflation data

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By Pranav Kashyap and Nivedita Balu

Feb 18 (Reuters) - Canada's main stock index closed higher on Tuesday, powered by energy and financial shares, as investors digested news that inflation inched higher in January.

The Toronto Stock Exchange's S&P/TSX composite index .GSPTSE closed up 165.61 points, or 0.65%, at 25,648.84.

The heavyweight energy sector .SPTTEN rose 1.4% with oil prices as traders assessed the fallout from drone attacks on a key conduit for Kazakhstan's oil exports. O/R Traders were still cautious as talks to end the war in Ukraine could boost Russian supplies.

Financials .SPTTFS also added 0.8%, led by iA Financial IAG.TO and the country's biggest lender Royal Bank of Canada RY.TO.

Bay Street analysts expected big banks to post strong first-quarter results next week, but noted an uncertain outlook for the rest of 2025 due to risk of a tariff war between the U.S. and other countries.

Materials .GSPTTMT rose 1.2% as it tracked a jump in gold prices driven by persistent demand for safe-haven assets.

Separately, January's annual inflation rate in Canada rose slightly to 1.9% from December.

While lower prices from a sales tax reprieve provided some relief, they were partly offset by rising costs of gasoline and natural gas, as shown in Tuesday's data.

The yield on Canada's 10-year benchmark bond CA10YT=RR and the 5-year benchmark bond CA5YT=RR hit three-week highs, exerting pressure on equities earlier in the day.

"There is clear evidence that underlying inflation pressures are building," said Stephen Brown, deputy chief North America economist at Capital Economics. "Given the tariff threat hanging over the economy, we still think the odds slightly favour another cut from the Bank of Canada next month, but it is shaping up to be a close call."

The threat of tariffs somewhat receded as global attention shifted to the developments in the Ukraine conflict involving U.S. President Donald Trump and his Russian counterpart, Vladimir Putin.

In other stocks, Fortuna Mining FVI.TO lost 8.3% after CIBC downgraded the miner to "underperform" from "neutral."

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