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TORONTO, Feb 7 (Reuters) - Toronto stocks were flat by late morning on Thursday, after rebounding from steep earlier losses, as a shift into financials was enough to just offset a downturn by resource issues.
The Toronto Stock Exchange's S&P/TSX composite index .GSPTSE was up 16.06 points, or 0.1 percent, at 12,883.26 after dropping as low as 12,747.61 near the start.
The rebound followed a drop of 3.4 percent over the past three sessions on worries over the health of the U.S. economy.
"The markets are overly reactive to both positive and negative announcements, and on any given day we are going to see tremendous volatility for the next three to six months," said Michael Sprung, president of Sprung and Co Investment Counsel.
But Sprung still sees the trend to the downside on expectation of more disappointing financial news amid the ongoing turmoil in the credit market.
Seven of the TSX index's 10 main sectors were higher, led by a 1 percent gain by the financial group and a 0.6 percent boost in the industrial sector. Utilities were up 0.4 percent.
All of the country's biggest banks were higher including Royal Bank of Canada (RY.TO), which added 98 Canadian cents to C$51.10, and Bank of Nova Scotia <BNS.TO,> which rose 60 Canadian cents to C$48.50.
Insurer Manulife Financial (MFC.TO) gained 16 Canadian cents to C$36.70.
But the resource-heavy materials group and the consumer discretionary group tempered the gains.
Materials shares fell despite firm prices as investors cashed in profits.
Among consumer discretionary issues, Thomson Corp TOC.TO, was down 32 Canadian cents at C$34.82.
The electronic publisher reported stronger earnings and a higher dividend, and said it could be hurt by a slowing economy, but its product mix makes it less vulnerable than in the past.
$1=$1.01 Canadian Reporting by Scott Anderson; Editing by Rob Wilson