TORONTO (Reuters) - Canada's main stock index hit its highest level in three months on Tuesday after bullish data signaled rising strength in the global economy and news of Verizon Communications Inc's (VZ.N) decision not enter the Canadian market drove up telecoms shares.
But gains were tethered by investor fears over greater volatility in the Middle East after some top Republicans said they supported U.S. President Barack Obama's push for limited military action.
After outperforming the S&P 500 .SPX in August for the first time this year, the resource-heavy Toronto market benefited on Tuesday from higher commodity prices, which spurred gains in shares of materials and energy companies.
Telecoms shares surged after Verizon's chief executive said in an interview the U.S. company is not planning to enter the Canadian wireless market.
"It's great for the telcos that they can continue their monopolistic hold on the Canadian consumer, though probably not so good for the consumer," said Diana Avigdor, portfolio manager and head of trading at Barometer Capital Management. "Nothing changes for the telcos."
The country's three biggest wireless companies, which had sold off earlier this year on fears of Verizon's entry, rebounded to have the biggest positive influence on the index.
Telecoms stocks soared 4.4 percent and posted the biggest gain of any major sector by far. Telus Corp (T.TO) added 6.8 percent to C$34.50, Rogers Communications (RCIb.TO) jumped 7.2 percent to C$44.59, and BCE Inc (BCE.TO) rose 3.9 percent to C$44.86.
Figures released for August showed demand picked up in the U.S. manufacturing sector and that domestic demand helped China's services sector grow.
Investors expect the U.S. data to encourage the U.S. Federal Reserve to move closer to dialing back, or tapering, its monetary stimulus program with market focus on the crucial U.S. employment report for August, to be released on Friday.
"Good data is considered to be tapering-friendly," Avigdor said. ""Good news on the economic front is bad news for quantitative easing."
"We have to come off the drugs and allow the economy to hold its own," she added.
The Toronto Stock Exchange's S&P/TSX composite index .GSPTSE closed up 86.60 points, or 0.68 percent, at 12,740.50, after reaching 12,828.13, its highest since May 22.
Six of the 10 main sectors on the index were higher.
The materials sector, which includes mining stocks, jumped 1.2 percent. In the group, Teck Resources Ltd TCKb.TO was up 3.2 percent at C$27.38, and Barrick Gold Corp (ABX.TO) rose 2 percent to C$20.52.
Boosted by a rise in the price of oil, shares of energy companies climbed 0.8 percent. Canadian Natural Resources Ltd (CNQ.TO) added 2.1 percent to C$32.81, and Suncor Energy Inc (SU.TO) rose 1.9 percent to C$36.17.
After two days of protests in Romania's capital, Bucharest, against the government's support for Gabriel Resources Ltd's (GBU.TO) plan to open Europe's biggest open-cast gold mine, shares of the company lost almost a fifth of their value. They were down 18.2 percent at C$1.39.
Editing by Peter Galloway