* Oil price rises on tensions in the Mideast
* Materials forge ahead nearly 9 percent
* Half of sectors hand back early gains
TORONTO, Dec 29 (Reuters) - Toronto's main stock index rose 2.2 percent on Monday, bolstered by strength in the materials and energy sectors as tensions in the Middle East supported oil and gold prices.
The energy group rose 3.6 percent as Israeli airstrikes on the Gaza Strip raised concerns that increased tensions throughout the region could disrupt crude supplies from the Middle East.
Oil prices were around $39 a barrel, after vaulting above $40 earlier. See [ID:nSIN417179]. Canadian Natural Resources (CNQ.TO) rose 4.3 percent to C$45.14.
The materials group also advanced, surging 8.9 percent as shares tracked oil prices. Among the top net gainers were fertilizer company Potash Corp (POT.TO), which rose 7.9 percent to C$88.14, and miner Agnico Eagle (AEM.TO), which rose 10.4 percent to C$62.25.
"Tax-loss selling is over for Canadians so we're having a little bit of a rebound, obviously led by the commodities," said Sal Masionis, a stockbroker at Brant Securities.
The deadline for tax-loss selling -- where investors realize losses on securities to offset capital gains taxes -- was Dec. 24 for the 2008 tax year.
At 10:55 a.m. (1555 GMT), the Toronto Stock Exchange's S&P/TSX composite index .GSPTSE was up 2.2 percent, or 184.98 points, at 8,495.53. Half of the index's 10 main groups were higher on the first trading day since the Christmas break when the index closed flat. Initially all 10 sectors were higher at the open.
Looking ahead to the new year, the economy is a big question mark for every asset class, including stocks, analysts says, but hopes for a market rebound remain.
The Toronto index has suffered nearly a 40 percent drop this year. The traditional "Santa Claus rally", an annual boost for the index in recent years of solid performance, failed to come to pass this year amid worries about the economy.
"There's a tremendous amount of cross-currents out there. We're just going to have to see how things develop. There's a tremendous amount of money on the sidelines, especially in the States," Masionis said.
Major U.S. stocks indexes fell on Monday on the collapse of a joint venture between Kuwait and Dow Chemical (DOW.N), while some large-capital technology companies also weighed.
Volume is expected to be light on both sides of the border with the trading week shortened by New Year's Day holiday on Thursday. ($1=$1.22 Canadian) (Reporting by Ka Yan Ng; editing by Rob Wilson)