* TSX up 31.82 points at 12,134.54
* Five of index's 10 sectors higher (Adds details, commentary)
By Claire Sibonney
TORONTO, Sept 8 (Reuters) - Toronto's main stock market index edged higher on Wednesday after a newspaper report said that Canada's banking regulator is preparing to ease capital requirements, paving the way for bank dividend increases.
The banking sector shot up more than 1 percent. Bank of Montreal (BMO.TO) jumped 2.2 percent to C$60.46, Royal Bank of Canada (RY.TO) rose 1.1 percent to C$52.99, and Toronto-Dominion Bank (TD.TO) was up 1.1 percent at C$74.37.
Paul Taylor, chief investment officer at BMO Harris Investment Management, said the "the hint of dividend increases as a result of clarified capital requirements" was behind the index's rise.
The Globe and Mail newspaper reported that Canada's Superintendent of Financial Institutions said in an interview that recent constraints on banks' capital could soon be lifted if talks on new international banking regulations in Basel next weekend go well. That would free banks to return excess capital to shareholders.
At 10:45 a.m. (1445 GMT), the Toronto Stock Exchange's S&P/TSX composite index .GSPTSE was up 31.82 points, or 0.3 percent, at 12,134.54. Five of the index's 10 groups were higher, with energy stocks flat and materials edging lower.
U.S. stocks were also firm, tracking European equities up ahead of U.S. Federal Reserve comments on the state of the economy later in the day. [.N]
Investors also digested the Bank of Canada's decision on Wednesday to raise its benchmark interest rate for a third consecutive time this year, nudging the rate up 25 basis points to 1 percent. Taylor said the move had already been largely priced in by the market. [ID:nN08241537]
Other data on Wednesday showed U.S. chain store sales increased last week and Canada's Ivey Purchasing Managers Index rose month over month in August. [ID:nNLL8KE6FW] [ID:nTAR001655]
In individual company news, Anatolia Minerals Development Ltd ANO.TO was down 6.4 percent at C$7.31, after the Canadian gold producer moved to buy Australia's Avoca Resources AVO.AX for C$1.01 billion ($971 million) to create an intermediate-level global gold producer. [ID:nSGE6870GO]
$1=$1.04 Canadian Reporting by Claire Sibonney; editing by Peter Galloway