May 27, 2010 / 8:37 PM / in 7 years

CANADA STOCKS-TSX surges 1.8 pct as Europe fears ease

* TSX closes up 205.22, or 1.78 percent, at 11,749.12

* China says Europe is a key investment market

* Weak bank results limit gains in financial group

* Nine of 10 indexes higher (Updates to close, adds quotes)

By Jennifer Kwan

TORONTO, May 27 (Reuters) - Toronto's main stock index ended higher for a second straight session on Thursday as commodity-linked stocks surged after China soothed investor worries by saying Europe was a key investment market.

Resource issues led the gains as oil climbed above $74 a barrel, while gold and base metal prices were also firmer. [O/R] [GOL/] [MET/L] The energy and materials sectors rose 4.2 percent and 2.2 percent, respectively.

Canadian Natural Resources (CNQ.TO) rose 4.9 percent to C$36.48, while Suncor Energy (SU.TO) climbed 5.5 percent to C$32.37. Imperial Oil (IMO.TO) climbed 3.7 percent to C$40.89 and EnCana Corp (ECA.TO) rose 3.9 percent to C$32.42. Teck Resources TCKb.TO was up 6.6 percent at C$36.79.

Market watchers said a key catalyst for the resource-heavy TSX was China's dismissal of a report that it was concerned about its euro-zone bond holdings. Beijing said Europe remains a key investment market for its foreign exchange reserves, helping to push up the euro and global equity markets. [ID:nTOE64Q04P] [FRX/] [MKTS/GLOB]

"I think for the markets to seize upon the China news and push everything up across the board speaks to how volatile market sentiment continues to be," said Elvis Picardo, analyst and strategist at Global Securities in Vancouver.

"It just speaks of how oversold the markets have been in the short term. Sentiment has been turning on a dime on a day-to-day basis," he said.

The Toronto Stock Exchange's S&P/TSX composite index .GSPTSE finished the session up 205.22 points, or 1.78 percent, at 11,749.12, with the upswing spread across most sectors.

The hefty financial group was the lone sector in the red, slipping just 0.01 percent. Earlier, it was down as much as 1.1 percent.

Three big banks reported higher profits on Thursday but their results came in below lofty market expectations. [ID:nN27201801]

Royal Bank of Canada (RY.TO), Canada's biggest bank, fell 4.44 percent to C$56.85, while No. 5 Canadian Imperial Bank of Commerce (CM.TO) sank 4.34 percent to C$72.02. However, Toronto-Dominion Bank (TD.TO), the No. 2 lender, was up 0.8 percent at C$73.38.

$1=$1.05 Canadian Reporting by Jennifer Kwan; editing by Rob Wilson

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