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* TSX up 130.67 points, or 1.22 percent, at 10,831.18
* Firm commodity prices lift energy, materials
* Fed, U.S. existing home data boost sentiment
* Index down 0.2 percent on the week (Adds details, quotes)
By Jennifer Kwan
TORONTO, Aug 21 (Reuters) - Toronto's main stock index shot higher on Friday, led by commodity-related issues, after upbeat U.S. home sales data and comments by Federal Reserve Chairman Ben Bernanke sparked optimism about an economic recovery.
Better than expected July sales of previously owned U.S. homes signaled the housing market may be pulling out of its three-year slump.[ID:nN21378170]
A further lift came from U.S. Federal Reserve Chairman Ben Bernanke, who said the global economy appears to be on the mend, though he cautioned the recovery would likely be sluggish. [ID:nN21401432]
The buoyant mood and expectations of rising demand helped to light a fire under commodity prices, with oil settling at a 10-month high of $73.89 a barrel. In turn that helped to boost the TSX's energy and materials sectors, up 1.8 percent and 1.3 percent respectively.
"Economic data has been a big trigger," said Fergal Smith, managing market strategist at Action Economics. "The market also liked what Fed Chairman Bernanke had to say about the near-term growth outlook."
The S&P/TSX composite index .GSPTSE closed up 130.67 points, or 1.22 percent, at 10,831.18, with all 10 of its main groups higher. The index sagged 0.2 percent for the week.
The TSX's climb followed overseas markets, which got an additional boost from a strong improvement in a euro zone manufacturing and services survey. [MKTS/GLOB]
Strength in Chinese shares, which have become a barometer of risk appetite in recent sessions, also helped the Toronto index move higher on Friday, even though weakness in Asia was the major reason behind a selloff earlier this week.
"One big hurdle this week has been the meltdown in Chinese equities and the Shanghai composite rebounded for a second day running, so that has helped restore confidence," added Smith.
The combination of factors has helped to put a bid in the overall market, said Rick Meslin, head of Canadian equities at UBS.
"It's a deployment of cash into sectors where you're getting the proper signals that 2010 is looking pretty good," he said.
Although Toronto rose in tandem with U.S. and overseas markets, analysts noted the summer doldrums have created lighter volumes that can result in exaggerated moves.
Other areas of strength included financials, up 1 percent, and the consumer discretionary group, which rose 1.5 percent.
The blue chip S&P/TSX 60 index .TSE60 closed 8.08 points higher, or 1.26 percent, at 651.82.
$1=$1.08 Canadian Reporting by Jennifer Kwan; editing by Rob Wilson