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TORONTO (Reuters) - The Toronto Stock Exchange's main index rallied nearly 200 points on Thursday after the world's top central banks injected billions of dollars into markets and on optimism about a possible plan to resolve the U.S. financial crisis.
The financial sector jumped 5.7 percent, boosted initially by central banks joining forces to pump $247 billion into the battered global financial system.
The stocks pared gains around midday, than rallied again late in the session on reports that U.S. Treasury Secretary Henry Paulson was considering creating an entity to deal with bad debt in an attempt to ease the U.S. financial crisis.
"Wild and crazy is the short answer," said Levente Mady, broker at MF Global Canada in Vancouver describing the day's volatile action.
"I think that this is a bear market bounce, we could probably see some follow-through, and I wouldn't be surprised if we went another 5 or 10 percent from these levels up higher, but eventually you are probably looking at lower levels three to six months from today," Mady added.
The S&P/TSX composite index .GSPTSE closed up 186.88 points, or 1.57 percent, at 12,064.57. The main index swung wildly during the day, rising more than 500 points earlier, then giving up nearly all of that before rebounding.
Coming into the session, the index had fallen nearly 900 points in the early part of the week as the failure of U.S. investment bank Lehman Brothers LEH.N and sharp stock declines among other U.S. financials sparked crisis of confidence on global markets.
"The real problem is an over valuation in the U.S. housing market that's destroying its financial institutions and contaminating the rest of the world-wide economies," said Andrew Martyn, portfolio manager at Davis-Rea.
"The governments are trying hard to intervene here but the problem is beyond them -- all bubbles need a correction of prices, a correction of psychology and time," Martyn said.
All but two of the TSX's 10 main groups ended in positive territory. Materials slipped nearly 2 percent as gold stocks weakened late in the session, with bullion prices retreating from highs above $900 as renewed investor optimism eroded its safe-haven investment appeal.
Units of Fording Canadian Coal Trust FDG_u.TO jumped 9.1 percent to C$75.80, as the central banks' liquidity injection raised expectations that Teck Cominco's TCKb.TO $13.5 billion takeover of the trust would go through.
The energy sector rose 1.2 percent as oil prices climbed on positive sentiment over the outlook for global economies and energy demand, and on growing concern over the effect of hurricanes on U.S energy inventories.
EnCana (ECA.TO) rose 4.1 percent to C$71.72 and Talisman Energy TLM.TO was up 5.2 percent at C$16.90.
Market volume was a heavy 861 million shares worth C$19.3 billion. Decliners outpaced advancers 829 to 765. The blue chip S&P/TSX 60 index .TSE60 closed 11.41 points higher, or 1.6 percent, at 722.43.
Wall Street had its best day in six years on news that Washington was thinking of a more wide-ranging approach to resolving the financial crisis.
The Dow Jones industrial average .DJI jumped 410.03 points, or 3.86 percent, at 11,019.69, while the tech-heavy Nasdaq composite index .IXIC shot up 100.25 points, or 4.78 percent, to 2,199.10.
Reporting by Natasha Elkington; editing by Rob Wilson