* Nine groups gain, financials lead as GMAC deal supports
* Sliding gold price drags materials lower
* Oil falls more than $1/barrel, but energy sector up
TORONTO, Dec 30 (Reuters) - Toronto's main stock index was up 1.6 percent at midday on Tuesday as a broad rally easily offset a retreating materials group, which was being led lower by a retreating gold price.
The TSX began the session slightly lower but gains from nine of the index's 10 main groups outweighed a drag from the materials sector, which had advanced strongly in the previous session along with oil and gas.
News that the U.S. government expanded its bailout of the crippled auto industry fed positive investor sentiment as Washington's move to support auto lender GMAC raised hopes that a recession would not be as long as previously feared. See [ID:nN29320920].
"Insurance and financials are leading the pack today in Canada based on that (auto) news," Steve Ibel, institutional equities trader at Beacon Securities, in Halifax, Nova Scotia.
He said the market was also given a bit of breathing room after the deadline had passed for tax-loss selling, where investors realize losses on securities to offset capital gains taxes.
At 12 p.m. (1700 GMT), the Toronto Stock Exchange's S&P/TSX composite index .GSPTSE was up 137.86 points, or 1.6 percent, at 8,775.15.
The consumer discretionary and telecoms sectors were both more than 3 percent higher, while industrials were not far behind.
Oil fell below $40 a barrel, pressured by gloom about prospects for world economic growth, which outweighed heightened tensions in the Middle East due to the Israeli-Hamas conflict. See [ID:nSIN393322].
The oil and gas sector came back from early losses, rising nearly 1 percent, as top names such as EnCana (ECA.TO) and Canadian Natural Resources (CNQ.TO) turned positive, rising 1.9 percent and 1.3 percent, respectively.
The materials sector was off 1.2 percent, as gold miners slumped alongside lower gold prices, while rising fertilizer issues and other miners provided some offset.
Economic reports in the United States showed no sign that the recession was easing though they had little effect on Canadian and U.S. stocks on Tuesday. The U.S. economy continued its run of record-breaking dismal data, with consumer confidence and home prices registering a pair of grim milestones. See [ID:nN30339924].
Volume was fairly light again with the trading week shortened by the New Year's Day holiday on Thursday.
$1=$1.22 Canadian Reporting by Ka Yan Ng; editing by Rob Wilson