* TSX gains 0.98 percent to 12,118.51
* Broad gains helped by strong commodities
* Barclays raises Canadian bank sector to positive (Adds details)
By Ka Yan Ng
TORONTO, May 12 (Reuters) - Toronto's main stock index rose sharply on Wednesday morning as commodity issues surged after Spain announced tough austerity measures that eased fears that euro zone debt problems would hamper economic growth.
Gold producers added to Tuesday's gains as the precious metal flew to a record high on lingering sovereign debt worries, while the price of oil held above $76 a barrel. That sent the materials and energy groups up 1.36 percent and 1.4 percent respectively.
EnCana (ECA.TO) rose 1.5 percent to C$32.79, while Barrick Gold (ABX.TO) climbed 1.7 percent to C$47.66. Cameco (CCO.TO) rose 2.42 percent to C$25.78 while Kinross Gold (K.TO) gained 2.2 percent to C$19.58.
At 10:55 a.m. (1455 GMT), the Toronto Stock Exchange's S&P/TSX composite index .GSPTSE was up 117.90 points, or 0.98 percent, at 12,118.51, rising for a third straight day.
Fears related to European debt troubles last week took the index to a loss for the year, it but bounced back after the announcement of a mammoth emergency aid package in Europe.
"It's a remarkable snapback," said Barry Schwartz, a portfolio manager at Baskin Financial Services.
"We're back to focusing on what matters and that's corporate earnings and they're coming in great. Companies are raising dividends left and right, and the economic data keeps improving."
The index rose more than 1 percent shortly after the open as Spain announced plans to slash civil service pay and cut jobs in a drive to meet European Union deficit targets. [ID:nLDE64B0SK]
The positive sentiment was also underscored by strong quarterly results from European banks, supported by better than expected German GDP data.
Canadian banks were also on the rise after Barclays boosted its rating on the heavyweight sector to positive from neutral. [ID:nWNAB9504]
Talisman Energy Inc TLM.TO, Canada's No. 4 independent oil and gas explorer, gained 3.3 percent to C$18.17 after it said it expects production growth of 5 percent to 10 percent in 2011. [ID:nSGE64B0G6]
Shares of Quebecor Inc (QBRb.TO) rose 2.27 percent to C$37.34 after it reported a rise in first-quarter operating earnings, driven by growth in its telecommunications segment and cost-cutting measures in its news media business. [ID:nN12166036]
Another active issue was drug maker Aeterna Zentaris AEZ.TO, which surged 16.8 percent to C$2.16, after it said it expects to begin a key mid-stage trial for its bladder cancer treatment later this year after U.S. regulators approved the company's investigational new drug application. [ID:nN12266035]
$1=$1.02 Canadian Reporting by Ka Yan Ng; editing by Rob Wilson