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* Index up 2.7 pct on day, 7.8 pct on week
* U.S. bank stress tests boost investor optimism
* Canada unexpectedly adds 35,900 jobs in April
* Energy group, up 5.7 percent, leads TSX rally (Adds quote, details)
By Jennifer Kwan
TORONTO, May 8 (Reuters) - Toronto's main stock index shot to its highest close in more than six months on Friday, buoyed by higher oil prices and rising optimism over surprisingly strong jobs data and the outlook for the U.S. financial system.
"We're coming out of a period where people were throwing around the Depression word," said Jennifer Radman, vice-president Caldwell Investment Management Ltd. "Now we're kind of seeing, maybe, it's not that bad."
The Toronto Stock Exchange's S&P/TSX composite index .GSPTSE was up 270.94 points, or 2.72 percent, at 10,237.99, its highest close since Oct. 20. Nine of its 10 main sectors higher.
The TSX was up 7.8 percent on the week.
The blue chip S&P/TSX 60 index .TSE60 closed 16.35 points higher, or 2.7 percent, at 622.02.
Healthier than expected Canadian and U.S. jobs figures on Friday fueled the upbeat mood. [ID:nN08444159] [ID:nN08455623]
Canada unexpectedly added 35,900 jobs in April, surprising analysts who had expected the economy to continue shedding jobs. The jobless rate remained at 8.0 percent.
In the U.S., employers cut 539,000 jobs in April, the fewest since October and below analyst forecasts. The unemployment rate there rose to 8.9 percent.
As well, so-called stress tests of U.S. banks came in much as analysts had expected, adding to the more upbeat mood.
The reviews showed 10 banks needed additional capital to withstand heavier losses that would likely come if the recession worsened. U.S. regulators told top banks on Thursday to raise $74.6 billion to build a capital cushion. [ID:nL8520410]
"The uncertainty of the bank stress tests over. You're seeing job losses slow," said Robert Lauzon, managing director of trading at Middlefield Capital Corporation.
"There's a lot of cash on the sidelines. Between short sellers covering and investors that have too much cash and need more equity in their exposure they're buying the market."
Lauzon added it helps dramatically when you have a weak U.S. dollar, which helps to propel commodity prices.
The Canadian dollar also benefited from a weaker U.S. dollar, surging to its highest level in over six months on Friday as investor appetite for risk surged as domestic and U.S. jobs data beat expectations. [ID:nN08498648]
But the larger question mark is whether the market rally may be too much, too soon, said Lauzon. The TSX is up 37 percent from its low in March.
The energy group rose 5.7 percent, bolstered by a firm oil price that climbed to settle above $58 a barrel. [ID:nSP435537]
Many of the top advancers included energy companies including EnCana ECA.TO, up 6.69 percent at C$65.42, and Suncor Energy (SU.TO), which rose 6.67 percent to C$37.26.
$1=$1.15 Canadian Reporting by Jennifer Kwan