May 20, 2009 / 9:46 PM / 8 years ago

CANADA STOCKS-TSX drives higher but closes off 7-month high

* TSX rises 1.3 pct to finish at 10,232.44

* Energy, materials lead rally

* Profit-taking pares market's early gains (Adds details, quotes, updated numbers)

By Cameron French

TORONTO, May 20 (Reuters) - Toronto's main stock index climbed more than 1 percent on Wednesday, boosted by rising oil and gold prices, but it pared stronger early gains as investors took profits after a sharp two-day rise.

The index rose by as much as 2.6 percent shortly after the open, touching a seven-month peak of 10,365.39, as oil charged to a six-month high above $62 a barrel, while gold climbed to an eight-week high above $940 an ounce.

Energy issues rose 2.17 percent, while the mining-heavy materials sector climbed 3.03 percent, largely on the back of gold stocks.

"Pretty much everything in terms of commodities is up, so that sort of says in a word what drives the Canadian market," said Ian Nakamoto, director or research at MacDougall, MacDougall & MacTier.

Among materials stocks, Yamana Gold (YRI.TO) surged 7 percent to C$11.42, while Goldcorp (G.TO) climbed 6.3 percent to C$42.14. Stronger copper prices also boosted the sector.

In the energy subgroup, Suncor Energy (SU.TO) rose 3.4 percent to C$36.26, while UTS Energy UTS.TO gained 4 percent to C$1.57.

All told, the Toronto Stock Exchange's S&P/TSX composite index .GSPTSE rose 131.49 points, or 1.3 percent, to finish at 10,232.44.

Bruce Latimer, a trader at Dundee Securities, said the pullback from the big early gains was not unexpected, given the 3.5 percent rise in the previous session.

"We've had a heck of a run over the last eight weeks, and to have the the odd day of giveback is not out of the ordinary, especially when we had a big day on Tuesday, which I think caught a lot of people off guard," he said.

The index has risen 35 percent since early March, as improving economic data and signs that credit markets are thawing have prompted hopes a recovery may be around the corner.

However, doubts about strength of the economy mean the market is still not out of the woods, said Nakamoto.

"I think there's still a great deal of skepticism out there ... meaning if you've got a profit now, better to take it now," he said.

Data showing domestic inflation dropped to a 14-year low of 0.4 percent <ID:nN20487391> had little impact on trading, analysts said. Also ignored was data showing Japan's economy shrank at a record pace in the first quarter. [ID:nSP468900]

The heavily weighted financial services sector rose 0.53 percent, led by CI Financial (CIX.TO), up 2.7 percent at C$17.72, and IGM Financial IGM.TO, which climbed 2.7 percent to C$38.48.

Canaccord Capital CCI.TO leapt 11.7 percent to C$8.10 after the investment dealer reported a surprise quarterly profit.

The weakest TSX sector was information technology, which retreated 1.56 percent.

The blue-chip S&P/TSX 60 index .TSE60 rose 8.89 points, or 1.45 percent, to 622.55.

$1=$1.14 Canadian Reporting by Cameron French; editing by Rob Wilson

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