* TSX down 5.08 pts, or 0.04 pct, at 12,229.27
* Italy, Spain yields trigger recession fears
* Strong Canada, U.S. data help offset Europe worries (Adds details, analyst comments)
By Jon Cook
TORONTO, Nov 15 (Reuters) - Canadian stocks closed almost unchanged in a volatile session on Tuesday as a late-day rally by mining issues on some rare positive news from Europe offset sagging financials.
Toronto's heavily-weighted materials sector climbed 0.5 percent, as gold and base metal miners rebounded after Italy's Prime Minister designate Mario Monti said he was close to completing the process of forming a new government. [ID:nL5E7MF0IL]
"After their (European) market closed it seemed liked Italy would be able to form a government and we got better news," said Kate Warne, Canadian market strategist at Edward Jones.
Miners Tech Resources Ltd TCKb.TO, up 2.4 percent to C$38.90, and Ivanhoe Mines Ltd (IVN.TO), up 4.8 percent to C$22.53, led the sector's gains.
Investors were hopeful Monti could push through tough European Union-mandated austerity measures that they hoped would stabilize Europe's third-largest economy.
Earlier in the session Italian and Spanish 10-year bond yields rose to levels considered unsustainable for their debt-riddled governments to be able to finance, putting pressure on the yield spreads of other European nations such as France, Germany, Holland and Austria. [MKTS/GLOB]
The euro zone turmoil initially caused a widespread market sell-off of financial stocks in favor of safe-haven U.S. and Canadian government bonds.
"The problem is about contagion, because everyone now agrees there's going to be a recession in the euro zone countries," said Gavin Graham, president at Graham Investment Strategy. "That obviously is going to have a knock-on effect on North American economies like Canada."
Despite having little direct exposure to European debt, Canadian financial stocks were the index's main drag, falling 0.5 percent. Canadian banks have fallen on negative European news on fears a widening crisis would hit their profits.
Royal Bank of Canada (RY.TO) was the biggest laggard, sliding 1.1 percent to C$45.40.
The Toronto Stock Exchange's S&P/TSX composite index .GSPTSE closed up 5.08 points, or 0.04 percent, to 12,229.27. The index was down for most of the session, touching a low of 12,147.86.
Strong North American economic data also helped offset some losses, as Canadian September factory sales hit their highest level in more than three years and U.S. October retail sales rose 0.5 percent, outpacing economists' expectations for a 0.3 percent gain. [ID:nSCLFME71G] [ID:nN1E7AE0A0]
"If the economic news, particularly out of the U.S., suggests that the economy will continue forward even at a sluggish pace but better than people were expecting, that's good news for materials," said Warne.
In company news, Avion Gold Corp AVR.TO shares fell more than 12 percent after the Canadian gold miner cut its full-year production forecast for the second time in two months. [ID:nL3E7MF1LA] (Editing by Jeffrey Hodgson)