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TORONTO (Reuters) - Energy and mining issues led the TSX to its biggest rise this month on Friday as investors' nerves were soothed by upbeat U.S. economic data and a move by some euro zone nations to boost the International Monetary Fund's lending capacity.
The gain halted a four-day selloff, but Canadian stocks still registered their largest weekly drop since November as worries about the impact of European debt sent commodity prices plunging and commodity-related shares diving for cover.
"Even though everything is not settled in Europe, the news doesn't look quite as bad as it seemed yesterday and the day before," said Kate Warne, Canadian market strategist at Edward Jones. "We've got the three big sectors (materials, energy and financials) moving higher (so) not too surprisingly you see a pretty big gain in the TSX."
Oil and gas issues led gains, rising more than 2 percent, even though Brent and U.S. crude prices dropped. Canadian Natural Resources (CNQ.TO) led energy sector risers, up 2.6 percent to C$36.10.
"When things seem to be doing better in the rest of the world then we see the oil stocks tend to move faster and higher than even crude oil prices," Warne said.
Gold mining stocks were boosted as the spot bullion price rebounded from the 2-1/2 month low it hit the previous session, helped by U.S. government data that showed inflation pressure waning, fanning expectations the Federal Reserve could do more to boost economic growth.
Barrick Gold (ABX.TO), up 1.9 percent to C$46.65, led gold miners.
Gold's rise was also underpinned by December's European Purchasing Manager Indexes report on Thursday, which showed a slight rise over November.
As well as gold, a rally in copper and other base metals helped lift the index's heavily weighted materials sector 2 percent. Base metals miners have slumped as Europe's debt problems have mounted, threatening to dampen demand for goods exported by nations that use Canadian raw materials.
Teck Resources TCKb.TO, up 2.2 percent at C$35.18, was among the top performers.
The Toronto Stock Exchange's S&P/TSX composite index .GSPTSE closed up 130.96 points, or 1.1 percent, at 11,635.38. It was still down more than 3 percent on the week.
Six of the index's 10 main sectors were up. Information technology was the biggest drag, hauled down by Research In Motion RIM.TO RIMM.O whose shares plunged more than 11 percent to C$13.97 after several brokerages trimmed their price targets on the BlackBerry maker after the company further delayed the release of its new line of smartphones.
Investor sentiment perked up when Slovak Finance Minister Ivan Miklos said on Friday that European countries are likely to agree to a pledge to boost the International Monetary Fund's lending capacity on Monday, providing crucial short-term relief for the debt-troubled euro zone.
This helped temper Thursday's warning by IMF Managing Director Christine Lagarde who said no country is immune to the escalating euro zone crisis, which she said could spiral into a global depression.
"Lagarde's comments yesterday were a definite wake-up call for anybody who thinks that things are going to be resolved in the short term," said Pat McHugh, Canadian equity strategist at Manulife Asset Management.
Canadian financials, which have less exposure to risky European debt assets than their global counterparts, were up 1.3 percent. The Royal Bank of Canada (RY.TO) led the sector's gains, climbing 1.1 percent to C$48.82.
Reporting By Jon Cook; Editing by Peter Galloway