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* TSX up 35.95 points, or 0.29 percent, at 12,497.93
* Touches two-month intraday high, gold miners drag (Updates with details, commentary)
By Claire Sibonney
TORONTO, Nov 8 (Reuters) - Toronto's main stock index retreated from its two-month high touched earlier on Tuesday morning, after a crucial budget vote in Italy hinted that Prime Minister Silvio Berlusconi had lost his parliamentary majority, piling further pressure on him to resign.
But after briefly turning negative on concerns over the euro zone crisis, the TSX pushed back into positive territory, led by heavyweight resource companies and banks.
Among the top advancers, Potash Corp (POT.TO) climbed 1.8 percent to C$50.12, Teck Resources TCKb.TO advanced 2.6 percent to C$40.33 and Royal Bank of Canada (RY.TO) added 0.5 percent to C$46.24.
Investor sentiment continued to be dominated by developments in Europe. Berlusconi won the budget vote, although Italy's opposition leader asked him to resign and said the country runs a real risk of losing access to financial markets in coming days.
Italy has displaced Greece as the focus of the euro zone's sovereign debt crisis, with government bond yields nearing unsustainable levels, which could force the EU's third largest economy to seek a bailout that Europe cannot afford.
"It looks like the Greece situation will now resolve itself and that will be very positive for all of Europe. And while it's not a permanent solution it's a good interim solution," said Douglas Davis, chief executive officer at Davis-Rea.
"I don't think Italy is in the sort of shape that Greece was in," added Davis. "At least they have a better infrastructure and a more reliable revenue system, and I don't think it's nearly the problem that Greece has been."
At 10:47 a.m. (1547 GMT), the Toronto Stock Exchange's S&P/TSX composite index .GSPTSE was up 35.95 points, or 0.29 percent, at 12,497.93. Shortly after the open, the index hit an intraday high of 12,542.58, its best level since Sept. 9.
Also pressuring broader gains, the gold-mining subsector slipped 0.2 percent after a surge in the previous session.
On Monday, the Toronto Stock Exchange's subindex of gold producers .SPTTGD, which often climbs on investor uncertainty, rallied to its strongest level since Sept. 22.
Bullion prices were holding around their highest levels in a month and a half as investor unease deepened over the threat of the euro zone debt crisis to the global economy. [GOL/]
($1=$1.01 Canadian) (Reporting by Claire Sibonney; editing by Rob Wilson)