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* TSX gains 0.47 percent to 12,668.01
* Nine of TSX's 10 main sectors higher
* Materials lone declining group, hurt by gold, Potash (Adds details)
TORONTO, Oct 18 (Reuters) - Toronto's main stock index closed higher on Monday in a broad advance led by financial issues, which were supported by a healthier profit at Citigroup and an acquisition by Royal Bank of Canada (RY.TO).
The Toronto Stock Exchange's S&P/TSX composite index .GSPTSE gained 58.94 points, or 0.47 percent, to close at 12,668.01. Nine of the 10 main TSX sectors rose, with financials up more than 1 percent.
Investors continued to be encouraged by the prospect of the Federal Reserve offering extra economic stimulus to the U.S. economy, a prospect that has helped fuel the TSX's recent rally.
"There's not much to be negative on," said Ian Nakamoto, director of research at MacDougall, MacDougall & MacTier.
"Central banks have let it be known that interest rates will stay low for a long period of time. They're going to be providing liquidity and some of that will go into the stock market and other assets. Earnings are continuing to move up and valuations are reasonable.
"Investor sentiment is turning more positive but I wouldn't say it's euphoric."
U.S. bank Citigroup reported a better than expected quarterly profit on Monday, stealing the spotlight from fears about the exposure of major U.S. banks to foreclosure losses. [ID:nN18138072] [ID:nN11106777]
Royal Bank rose 1.17 percent to C$56.20 after it offered to buy British fund manager BlueBay Asset Management BBAY.L for 963 million pounds ($1.5 billion) as Canada's biggest bank looked to cement its position as a top 10 global wealth manager. [ID:nLDE69H06R]
Other banks were also strong performers, with Canadian Imperial Bank of Commerce (CM.TO) adding 1.4 percent to C$78.36, while Bank of Montreal (BMO.TO) and Bank of Nova Scotia (BNS.TO) each rose nearly 1 percent.
"The U.S. liked Citibank earnings, their financials seem to be better and I think that has spilled over to our banks," said John Kinsey, portfolio manager at Caldwell Securities.
The sole weak spot was the index's materials group, down 0.49 percent, largely because of falling gold-mining shares. The price of gold fell sharply and looked set to post its biggest two-day loss in three months, but it ended the session about flat. Goldcorp (G.TO) slipped 0.84 percent, while Kinross Gold (K.TO) dropped 0.94 percent.
Potash Corp (POT.TO) also put pressure on the materials group, dropping 0.98 percent to C$145.34 after a newspaper report said the province of Alberta's provincial money manager was leading discussions with some of Canada's pension funds on a plan to preserve the independence of the fertilizer maker. [ID:nN18258207]
With its options running out and time running out, Potash Corp may soon have little choice but to negotiate with miner BHP Billiton, which has made a $39 billion takeover offer for Potash that Potash, the world's largest fertilizer supplier, has flatly rejected. [ID:nN18228432]
Looking ahead, the Bank of Canada is expected to maintain its overnight target rate on Tuesday at 1.0 percent and downgrade its economic growth forecasts for 2010 and 2011, with further explanation due on Wednesday in its Monetary Policy Report. [ID:nTOR007843] [ID:nN15144891]
($1=$1.01 Canadian) (Reporting by Ka Yan Ng; editing by Peter Galloway)