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TORONTO (Reuters) - Canada's main stock index rose to its highest level in 1-1/2 months on Thursday as investors took heart from Federal Reserve Chairman Ben Bernanke's comments that the U.S. central bank will adopt a flexible approach in dialing back its stimulus program.
Strong earnings reports from major U.S. companies also boosted sentiment as investors trained their sights on the Canadian earnings season, which kicks into high gear next week.
Led by gains in financial and energy stocks, the Toronto market's Fed-inspired rally spilled over into a second session as investors remained fixated on the Fed chairman's congressional testimony.
Bernanke said on Wednesday that the Fed expects to start scaling back its bond purchases later this year but left open the option of changing that plan if the economic outlook shifts.
"The markets have been reassured for now by comments from Bernanke," said Youssef Zohny, portfolio manager at Stenner Investment Partners, a unit of Richardson GMP.
"(But) we definitely see increased volatility in the markets over the next couple of months as investors become more sensitive to economic data and try to factor in monetary policy."
The Toronto Stock Exchange's S&P/TSX composite index .GSPTSE closed up 60.08 points, or 0.48 percent, at 12,628.85, after rising as high as 12,680.23, its highest point since June 3.
"The Fed has reassured markets they're not going to take the training wheels off the economy until it's more than ready," said Stan Wong, a portfolio manager at Macquarie Private Wealth. "It's soothing the markets that the withdrawal of quantitative easing is more data-dependent and not calendar-dependent."
"The odds of a taper in September might have gone down a little bit," he added. "It's not a set schedule. It's just going to be based on where the economy goes from here."
Five of the 10 main sectors on the index closed higher.
Financials, the index's most heavily weighted sector, gained 1.3 percent. Royal Bank of Canada (RY.TO), the country's biggest lender, jumped 1.5 percent to C$64.78 and had the biggest positive influence on the index. Toronto-Dominion Bank (TD.TO) was up 1.5 percent at C$87.48.
Energy shares climbed 0.8 percent, reflecting gains in the price of oil. <O/R> In the group, Canadian Natural Resources Ltd (CNQ.TO) added 1.7 percent to C$33.92, and EnCana Corp (ECA.TO) rose 1.3 percent to C$18.04.
The materials sector, which includes mining stocks, was hurt by declines in gold mining stocks, which had a volatile session. Goldcorp Inc (G.TO) was down 1 percent at C$27.34.
While Wong does not recommend investing in the gold sector long term, he predicted another 5 percent jump in the price of the precious metal.
"You'll see an oversold bounce in gold," he said. "You're also getting into a positive season for gold."
Fed Chairman Bernanke also offered his thoughts on the commodity. "Nobody really understands gold prices," he told a Senate panel on Thursday. "And I don't pretend to understand them either."
Editing by Peter Galloway