TORONTO (Reuters) - Canadian stocks rose on Wednesday to their highest close since mid-November as another round of favorable U.S. economic data lifted financial and energy issues, though concerns about tightening of Europe's credit markets curbed the overall gains.
Momentum from Tuesday's 2 percent rally slowed considerably even as solid November data on U.S. factory goods orders added to mounting evidence that Canada's largest trading partner is on track to recovery. The figures followed a stronger-than-expected U.S. manufacturing report the previous session and boosted confidence in Canada's export-driven economy.
An improving North American outlook helped financial stocks weather more bad news from European banks. Bank of Montreal (BMO.TO), up 0.7 percent to C$57.43, and Royal Bank of Canada (RY.TO), which edged up 0.3 percent to C$52.95, led the sector's gains.
"It's the tale of two sides of the Atlantic," said Stephen Wood, chief North American investment strategist at Russell Investments in New York. "When markets are allowed to focus on fundamentals and valuations as on our side of the Atlantic, you tend to see markets respond positively."
The Toronto Stock Exchange's S&P/TSX composite index .GSPTSE finished up 18.04 points, or 0.15 percent, to 12,226.47. It was the index's highest close since reaching 12,229.27 on November 15.
The heavily weighted materials sector edged up as bullion's strongest two-day rally in 2-1/2 months boosting gold mining stocks. The move by gold was supported by strong Chinese buying and a preliminary agreement by European Union governments to ban imports of Iranian crude.
"Gold in these periods of embargo and conflict in the Middle East tends to do well," said Bart Melek, head of commodity strategy at TD Securities.
Barrick Gold (ABX.TO) led miners, rising 1.2 percent to C$48.71.
Oil and gas issues edged higher as U.S. crude erased losses and turned higher after the EU threat of sanctions, but Melek didn't expect the oil bump to last. <O/R>
"It's not a credible threat mainly because there's nowhere else to get their crude from," said Melek.
Penn West Petroleum PWT.TO led the energy sector's gains, up 2.3 percent at C$21.43.
Worries about the euro zone debt crisis dragged on stocks after Italy's biggest bank, UniCredit (CRDI.MI), priced a 7.5 billion euro ($9.7 billion) capital hike at a massive discount, highlighting the struggle the sector faces to raise funds.
Additional data released on Wednesday suggested euro zone banks remained wary of lending to each other.
A subdued German bond auction and Italian bond yields that hovered close to levels deemed unsustainable also contributed to a slump in European stocks.
The German auction kicked off a huge European sovereign refinancing cycle, with traders worried that debt-laden countries such as Italy and Spain may have to pay unsustainably high prices to meet their needs.
"They've got to raise a pile of dough and it's shaky ground on which to do that in Europe," said Fred Ketchen, director of equity trading at ScotiaMcLeod.
Back in Canada, Potash Corp's (POT.TO) shares fell roughly 2 percent to C$43.42 after a dip in grain prices and a bearish view from a brokerage firm.
($1 = 0.7747 euros) ($1 = 1.0145 Canadian dollars)
Editing by Frank McGurty