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* TSX rallies 2.77 percent to 7,859.33
* Financials jump 7.2 percent
* Energy issues up 5.5 percent on oil
* Materials retreat 5.2 percent on gold (Adds details, quote)
TORONTO, Feb 24 (Reuters) - Toronto's main stock index closed sharply higher on Tuesday as oil and gas issues climbed with rising crude prices, while financials strengthened as fears over the fate of the troubled U.S. banking sector eased.
In see-saw action, the benchmark index swung nearly 300 points from trough to peak, with the upside supported by strength in energy issues as oil settled nearly 4 percent higher at $39.96 a barrel. [ID:nSIN379847] The main pressure to the downside came from weaker gold prices.
Oil and gas stocks rose 5.5 percent, while materials sank 5.2 percent.
The heavily weighted financial services sector led the TSX higher, and finished the day up 7.2 percent. The sector followed U.S. stocks higher after Federal Reserve Chairman Ben Bernanke signaled that nationalization of major U.S. banks was not at hand. [ID:nN24405808]
As well, markets were higher ahead of U.S. President Barack Obama's speech on Tuesday night, said Fergal Smith, managing market strategist at Action Economics. The speech is expected to lay out the blueprint for the administration's economic plans.
"Part of it is the market is quite short financials so I think there's an incentive to cover shorts ahead of Obama's speech tonight," said Smith.
"In Canada, in particular, we've got the bank earnings starting tomorrow so there's some incentive, for the speculative guys, to take some risk off the table."
The Toronto Stock Exchange S&P/TSX composite index .GSPTSE closed up 211.66 points, or 2.77 percent, at 7,859.33, with nine of its 10 main groups advancing.
The index rose sharply at the open, rebounding from multi-year closing lows on both Canadian and U.S. markets on Monday.
On the downside, Barrick Gold (ABX.TO) fell 12.2 percent to C$39.25, and Goldcorp (G.TO) dropped 8.9 percent to C$35.03 as gold retreated 2 percent on a slightly more upbeat economic outlook [ID:nL1449620]. ($1=$1.24 Canadian) (Reporting by Jennifer Kwan)