(Updates throughout with details, analyst comments, market reaction)
* TSX up 333.62 points, or 2.56 percent, at 13,386.36
* Nine of the TSX's 10 main groups were up
By Solarina Ho
TORONTO, Aug 25 (Reuters) - Canada's main stock index was headed for its biggest daily gain for the year on Tuesday, jumping more than 2 percent after the Chinese government announced an interest rate cut overnight following Monday's volatile global rout.
The 25-basis-point cut for the one-year benchmark lending rate by the People's Bank of China helped global markets to rebound. Investors fretting over the global impact of slower Chinese growth sparked panic selling around the world on Monday.
"Yesterday there appeared a fair amount of capitulation. It appeared to be more retail-oriented than institutional from what we could see in terms of the volumes," said Irwin Michael, portfolio manager at ABC Funds. He called Tuesday's recovery "a good sign," but noted the market has yet to recoup last week's losses.
"Even though the markets are up ... a lot of investors are still skeptical," Michael added. "Yesterday was a wake-up call that no one should be too complacent on the marketplace."
At 11:22 a.m. EDT (1522 GMT), the Toronto Stock Exchange's S&P/TSX composite index was up 333.62 points, or 2.56 percent, to 13,386.36.
Of the index's 10 key groups, only materials, home to mining and other resource firms, were lower. Advancing issues outnumbered decliners on the TSX by 213 to 32, for a 6.66-to-1 ratio. Of the 32 losers, all but four were resource companies.
"Yesterday probably indicates the Federal Reserve will probably postpone any interest rate increase for fear that it could precipitate another decline like yesterday," said Michael.
Banks, which will report quarterly results this week, were the index leaders, with Toronto-Dominion Bank jumping 4.1 percent to C$51.01. Royal Bank of Canada advanced 3.7 percent to C$73.35.
Bank of Montreal rallied 4.6 percent to C$69.23 after reporting a third-quarter profit that topped expectations.
Investors may have been too negative on bank earnings, said Michael, adding that BMO's results could spark more optimism for other institutions reporting this week.
The financials group climbed 3.5 percent after tumbling 2.8 percent on Monday. Prior to Tuesday's gains, it had fallen more than 9 percent through August.
Energy shares also gained, climbing 4.6 percent after losing 9.4 percent last week and Monday. While oil was up more than 3 percent during the session, prices still hovered near 6-1/2 year lows, with U.S. crude under $40 a barrel at $39.29 a barrel.
Suncor Energy rose 3.4 percent to C$34.05.
Barrick Gold Corp was the most influential decliner, falling 4.3 percent to C$9.16. (Editing by Jeffrey Benkoe)