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By Leah Schnurr
TORONTO, Jan 28 (Reuters) - The Toronto Stock Exchange's main index overcame early losses to end higher on Monday, boosted by resource shares and expectations of another U.S. interest rate cut later in the week.
After the index fell more than 100 points in the morning, strong resource shares helped pull it back up, with the resource-heavy materials sector gaining 2.1 percent and its gold-producers subsector up 1.7 percent.
Also in the resource group, Potash Corp of Saskatchewan (POT.TO) climbed C$6.22, or 4.6 percent, to C$140.20.
The financials sector, the biggest on the index, also contributed to the rally, adding 0.9 percent, as investors were optimistic the U.S. Federal Reserve would cut interest rates again on Wednesday.
The S&P/TSX composite index .GSPTSE closed up 92.08 points, or 0.71 percent, at 12,986.91, pulled higher in a late-day rally. Six of the TSX's 10 main sectors ended in positive territory.
Last week, an emergency rate cut by the Fed, plus a smaller cut by the Bank of Canada in its scheduled rate announcement, helped pull the Toronto index out of a massive five-day slump.
"The market is fixated on yet another interest rate reduction, so investors are hoping that there will be positive implications for the banks," said John Ing, president of Maison Placements Canada.
The energy sector reversed direction to end higher, while the price of crude bounced higher on expectations that OPEC will maintain output levels.
Petro-Canada PCA.TO added 45 Canadian cents, or 1 percent, to C$46.76, and Nexen Inc NXY.TO rose 32 Canadian cents, or 1.2 percent, to C$28.16. The overall sector was up 0.5 percent.
On the downside, the small telecoms group was off 1.1 percent. BCE Inc (BCE.TO) was down C$1.34, or 3.7 percent, at C$34.95 amid worries that the buyout of Canada's biggest communications company could be delayed or fall apart.
After last week's wild swings up and down, analysts remained cautious as concerns over the health of the U.S. economy persisted and uncertainty remained over whether there will be more writedowns in the financial sector.
"We're not even out of the woods yet, or seen any lights at the end of the tunnel," Ing said. "This is going to be a continuously tough slog. It's very much early days and the unwinding of the financial bubble."
Market volume was 358 million shares worth C$6.2 billion. Advancers outpaced decliners 826 to 753. The blue chip S&P/TSX 60 index .TSE60 closed up 6.21 points, or 0.82 percent, at 761.85.
In New York, investors were also hoping for an interest rate cut, while bargain-hunting helped push shares of banks and manufacturers higher.
The Dow Jones industrial average .DJI rose 176.72 points, or 1.45 percent, to 12,383.89, and the Nasdaq Composite Index .IXIC was up 23.71 points, or 1.02 percent, at 2,349.91.
$1=$1.00 Canadian Editing by Peter Galloway