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* TSX up 85.05 pts, or 0.7 pct, at 12,447.08
* Materials, energy issues lead gains
* U.S. data, Greek debt hopes lift sentiment
* Barrick Gold earnings weigh
By Jon Cook
TORONTO, Feb 16 (Reuters) - Toronto's main stock index bounced higher by midday Thursday, reversing early losses, as energy shares were lifted by rising oil prices and strong U.S. data, while optimism over a Greek debt deal offset softer than expected earnings by Barrick Gold.
Oil and gas producers pulled the index into positive territory after Brent crude prices climbed to $120 a barrel on Iran supply concerns and an expected drop in North Sea output.
Energy gains were led by Canadian Natural resources , which rose 1.3 percent to C$36.88. Cenovus Energy was up 1.4 percent at C$38.62 after Canada's No. 2 independent oil producer said on Wednesday its quarterly profit tripled on production gains.
Risk sentiment was also buoyed by upbeat data that suggested the U.S. economic recovery remained healthy as jobless claims fell to a near a four-year low and housing starts rose in January.
The signs of U.S. growth helped the heavyweight materials sector reverse early losses from weaker fourth-quarter earnings by Barrick Gold. The world's largest gold miner saw its share price drop 0.6 percent to C$47.26 after its quarterly profit rose 15 percent, but fell short of expectations.
The sector's decline was offset by healthy results from Goldcorp Inc, which rose 3.4 percent to C$46.77, and by Kinross Gold Corp, which jumped 6.2 percent to C$10.98.
"It's somewhat neutral on the whole," said Gareth Watson, vice-president of investment management and research at wealth management firm Richardson GMP. "But when you have these larger-weighted companies coming in with neutral it really doesn't do a lot for the index."
At noon, the Toronto Stock Exchange's S&P/TSX composite index was up 85.05 points, or 0.7 percent, to 12,447.08.
The market extended gains on signs of progress to secure a bailout for Greece after a report on Thursday said euro zone central banks agreed on a Greek bond swap as part of a deal to help the debt-laden nation.
In Canada, financial issues were up, led by Bank of Nova Scotia, which climbed 1 percent to C$53.38.
Greece needs the bailout to finance major bond redemptions due next month, which if not met could wreak havoc with liquidity in European financial markets due to hefty Greek debt holdings in the form of credit default swaps and insurance policies.
On Thursday, Moody's warned it may cut the credit ratings of 17 global banks and 114 European financial institutions in another sign the impact of the euro zone debt crisis is spreading throughout the world's financial system.
"Once you start bringing up liquidity issues in the market, the market becomes extremely tentative, if not negative," said Watson.