* Financials lead TSX higher, aided by U.S. bank hopes
* Energy group also active on oil sands takeover bid
* Fed helps lifts TSX to highest level since Jan. 16 (Updates to closing figures, adds details)
By Ka Yan Ng
TORONTO, Jan 28 (Reuters) - Toronto's main stock index rose 1.7 percent on Wednesday, led by the heavily weighted financial sector, on hopes that the multibillion-dollar stimulus package unveiled in Tuesday's Canadian budget and further U.S. government action will promote economic stability.
The market saw the United States moving quickly to stabilize its ailing banking sector, which helped to boost U.S. stocks, as lawmakers prepared to vote on a stimulus package to help the recession-hit economy.
Five of Canada's biggest financial institutions were among the top 10 advancers, with the financial group as a whole up 4.7 percent.
Toronto Dominion Bank (TD.TO) gained 6.7 percent to C$42.38, while Bank of Nova Scotia (BNS.TO) rose 5.3 percent to C$31.17. Royal Bank of Canada (RY.TO), CIBC (CM.TO), and Manulife (MFC.TO) were also big gainers.
"We've got some rather magnificent gains in the financials south of the border and that's following through into Canada. That's the primary driver today," said Lex Kerkovius, senior research analyst at McLean & Partners Wealth Management Ltd., in Calgary.
The S&P/TSX composite index .GSPTSE unofficially closed up 1.7 percent, or 149.29 points, at 8,908.92, but off the highs seen after the U.S. Federal Reserve held rates steady and said it was prepared to buy longer-term U.S. government debt.
Eight of the TSX's 10 main groups advanced.
The financials were also supported by plans outlined in Tuesday's federal budget. The government said it would commit C$50 billion more to a program that buys insured mortgages and would also give itself the authority to inject capital into banks and financial companies that need support. [ID:nN27430329]
"No one is saying that the Canadian banks are going to go the way of the U.S. banks, but it's better to have something in place in case it happens," said Ian Nakamoto, director of research at MacDougall, MacDougall & MacTier.
The oil group was also in focus, rising 2.22 percent after the first takeover attempt was launched in the oil sands sector since slumping oil prices undercut multibillion-dollar expansion plans.
Shares in oil sands developer UTS Energy Corp UTS.TO more than doubled after French oil major Total SA (TOTF.PA) launched an unsolicited C$617 million bid for the company. UTS, the most heavily traded stock, rose 90 Canadian cents to C$1.73 as analysts said a higher offer may come. [ID:nLS714427]
The takeover bid also gave a boost to Teck Cominco TCKb.TO, which rose 6.25 percent to C$5.95 on hopes that Total could emerge as a potential bidder for Teck's stake in the Fort Hills oil sands project.
$1=$1.21 Canadian Reporting by Ka Yan Ng; editing by Rob Wilson