OTTAWA and TORONTO -- The U.S. Federal Reserve's plan to create and spend more than $1-trillion (U.S.) is expected to trigger a tsunami of cash from central banks around the world that will spark economic growth and test policy makers' ability to contain inflation.

Economists said yesterday that the European Central Bank and the Bank of Canada will follow the Fed's pledge on Tuesday to effectively double its reserves to buy Treasuries and other assets, creating the prospect of a global pool of easy money.

Investors bet the initiatives would not only restore global growth, but spark rampant inflation, and bought up hard assets that will both be in demand as economies recover and serve as hedges against inflation.

Gold soared the most in six months and silver posted its biggest one-day rally in 29 years.

Copper, which has lost more than half its value since peaking at a record above $4 a pound last June, climbed 5 per cent to a four-month high of $1.80 yesterday. Oil for April delivery surged $3.47 or 7 per cent to settle at $51.61 a barrel on the New York Mercantile Exchange, the highest in three months.

"What the Fed has done is put a strong bid under the commodities such as copper, steel, perhaps the grains, perhaps too, energy, but most certainly the precious metals for the long and foreseeable future," Dennis Gartman, an influential analyst, advised clients in a report issued yesterday.

The commodities rally reflects the global reverberations from Fed chairman Ben Bernanke's embrace on Tuesday of quantitative easing.

Following the lead of central banks in Japan and Britain, Mr. Bernanke and his deputies on the Federal Open Market Committee said they would buy $300-billion of longer-term government debt over the next six months in an attempt to lower yields across the credit spectrum.

The Fed's policy setting committee also said the U.S. central bank would purchase $850-billion of mortgage-related securities to target the price of home loans.

The Fed's announcement sparked a rally in North American stock markets that continued around the globe as trading began in Asia yesterday. Yields on those longer-term government notes tumbled as Mr. Bernanke hoped they would.

Wall Street was less enthusiastic after sleeping on the Fed's announcement, as the Standard & Poor's 500 index dropped 1.3 per cent to 784.04. Canadian stocks held on, as the S&P/TSX composite index rose 0.71 per cent to 8,690.49.

The gains in Toronto trading reflect the influence of commodities on Canada's biggest exchange, and a sustained commodities rally would boost the country's resource-based economy by increasing national wealth.

To be sure, Bank of Canada Governor Mark Carney is seeking a rise in commodity prices spurred by global demand rather than one based on the view that his policies risk sparking runaway inflation.

Yesterday's surge could be more of the latter.

Jamie Horvat, a senior portfolio manager at Sprott Asset Management in Toronto, said many investors are of the view that all the money the Fed is printing will lead to a devaluing of the U.S. dollar, prompting a move to harder assets such as gold.

The U.S. dollar has lost about 5 per cent of its value against a basket of six other currencies in the time since the Fed's decision was announced.

"We are in the beginnings of a gold mania now," Mr. Horvat said in an interview. "The inflation argument is starting to ring true with people now."

Neither Mr. Carney nor European Central Bank president Jean-Claude Trichet has said whether he will resort to quantitative easing.

After reducing the benchmark lending rate to 0.5 per cent earlier this month, the Bank of Canada said it would use its next quarterly economic report on April 23 to lay out a plan to expand the money supply, but didn't commit to executing it.

Not everyone believes that the quantitative easing will lead to inflation.

TD Securities strategist Millian Mulraine said in report yesterday that such fears are "overblown," noting central bankers have, for more than a decade, been vigilant about keeping inflation in check.

David Laidler, an economics professor emeritus at the University of Western Ontario in London, Ont., and former adviser at the Bank of Canada, said Mr. Bernanke has ample time to reverse his policies before inflation becomes a serious threat.

"I don't think you are going to get inflation in an economy that is running below full employment," he said.

Indeed, there are some early signs that the Fed's bid to instill confidence in credit markets is working.

Barrick Gold Corp., the world's largest bullion producer, announced a $750-million (U.S.) sale of 10-year notes that carry a yield of 6.95 per cent.

That suggests that Barrick believes it is now cheaper to access debt markets than equity markets. Prior to the Fed announcement, Barrick had been mulling a major equity issue of more than $1-billion, according to sources.

"The window opened and we took advantage of it," Barrick spokesman Vince Borg said in an interview yesterday about the debt deal.

Fed plan knocks greenback, boost commodities

U.S. dollar v. Canadian dollar

Yesterday's close

80.80¢, up 0.56¢

Gold, $U.S. a troy ounce

Yesterday's close

$958.80 U.S., up $69.70

Copper, $U.S. a pound

Yesterday's close

$1.81 U.S., up 9¢

KATHRYN TAM/THE GLOBE AND MAIL 66 SOURCE: BLOOMBERG