* TSX up 131.46 points, or 1.07 percent, at 12,424.84.
* Financials lead rally, energy sector also gains
* Gold miners drag materials group down 0.7 pct (Updates to close. Adds details, comments)
By Trish Nixon
TORONTO, Sept 15 (Reuters) - Toronto's main stock index rose for a third straight session on Thursday as co-ordinated action to boost liquidity in the strained European banking sector raised hopes that the euro zone debt crisis would be defused as a threat to global economic recovery.
The European Central Bank, the U.S. Federal Reserve and other central banks said they would increase U.S. dollar funding for banks was cautiously welcomed as a sign that authorities were making a concerted effort to resolve Europe's debt crisis after weeks of market turmoil. [ID:nL5E7KF2LG]
"On its own, this is just another headline to trade off of," said John Johnston, chief strategist at Davis-Rea Ltd. "But it's a sign that (policymakers) are being galvanized ... It's a step in the right direction, and a sign that there's more steps to come."
The announcement boosted European bank shares and cut risk aversion across global markets. Toronto's heavyweight financial sector, which had fallen in sympathy with battered European banks lately, led the rally on the TSX, rising 2.3 percent.
Royal Bank of Canada (RY.TO) jumped 3.2 percent to C$47.47, Toronto-Dominion Bank (TD.TO) rose 2.5 percent to C$75.17, and Manulife Financial (MFC.TO) surged 6.3 percent to C$12.91.
Energy shares were also lifted by the upbeat mood, gaining 1.8 percent as oil prices climbed. Canadian Natural Resources (CNQ.TO) rose 2.2 percent to C$35.22, while Cenovus Energy (CVE.TO) advanced 3.3 percent to C$34.10. [O/R]
The Toronto Stock Exchange's S&P/TSX composite index .GSPTSE ended the session up 131.46 points, or 1.07 percent, at 12,424.84. Nine of its 10 main groups gained.
In the past three sessions the TSX has rebounded almost 2.3 percent, but analysts warned the gains could be short-lived.
"There is an improvement in sentiment here but it wont take much to smack it down again," said Johnston.
"Ultimately we need to see some kind of concerted action (in Europe) like we saw with the big central bank rate cuts and the troubled asset relief program in the U.S ... Until we see that, I think we want to view these things as short-term rallies within a declining market."
On the downside, the TSX's heavyweight materials group sank 0.7 percent, dragged down by retreating precious metal miners as gold prices slipped below $1,800 an ounce. [GOL/] [ID:nL5E7KF1A4]
Goldcorp Inc (G.TO) dropped 1.07 percent to C$49.83 and Agnico Eagle (AEM.TO) eased 2.6 percent to C$66.85.
"There's a certain amount of frustration among investors ... Gold stocks seemed to lag on the way up, and on the way down they tend to fall down faster than the price of gold," said Elvis Picardo, strategist and vice-president of research at Global Securities in Vancouver. But he said there was still an upside in gold stocks.
"If you look at the trend for so many years now, every significant retracement in gold has been met with buying at some point. So if it falls much further we would expect sustained buying to come in once again."
In individual company news, Research in Motion RIM.TO fell 0.3 percent to C$29.40 ahead of its quarterly results, which were reported after market close.
The BlackBerry maker reported a sharp drop in quarterly profit, hurt by an aging lineup of smartphones that was only refreshed very late in the quarter and tepid sales of its PlayBook tablet computer. [ID:nS1E78E1MR]
Embattled miner Silvercorp (SVM.TO), caught in a maelstrom of anonymous fraud allegations, said on Thursday its shares are undervalued and it is pushing ahead with its buyback plan. Its stock rose 7.3 percent to C$6.90. [ID:nS1E78E0BZ]
($1=$0.98 Canadian) (Editing by Peter Galloway and Rob Wilson)