TORONTO (Reuters) - The Toronto Stock Exchange's main index rebounded from early losses to end slightly higher on Wednesday as its financial sector posted a late turnaround after talk of capital infusions for U.S. bond insurers.
The heavyweight financial sector rose 3.8 percent after news that New York's insurance regulator had met with major banks to talk about a plan to help out bond insurers.
The Financial Times reported that major banks are under pressure from New York state's insurance regulators to inject as much as $15 billion in new capital.
A rally in U.S. financial stocks on hopes for a rescue plan led the way higher for Canadian banks.
In Toronto, Canadian Imperial Bank of Commerce, Canada's fifth-largest bank, jumped C$4.16, or 6.4 percent, to C$69.62.
CIBC has the biggest exposure of any Canadian bank to the battered U.S. subprime market, some of which it has hedged with U.S. bond insurer ACA Capital Holdings Inc, and other bond insurers.
Bank of Montreal rose C$2.21, or 4.1 percent, to C$55.85, and Royal Bank of Canada was up C$2.20, or 4.5 percent, at C$50.99.
Sal Masionis, stockbroker at Brant Securities, said the possibility of such a plan is a "positive sign."
"I think it's a bit of a relief rally, (but) we don't know what's going to come out of this and what kind of deal the government's going to do," Masionis said.
The S&P/TSX composite index closed up 16.52 points, or 0.13 percent, at 12,657.40 with six of its 10 main sectors higher.
The volatile session came a day after Tuesday's 500-point gain, which ended a heavy five-session slump. The index has closed up in just two of the past seven sessions.
Wednesday's late-afternoon rally followed a drop in resource shares, due to persistent fears of a U.S. recession, that had earlier pulled the key index down by as much as 400 points.
The materials and energy sectors remained on the downside, off 2.7 percent and 2.2 percent respectively. Potash Corp of Saskatchewan was down C$5.00, or 3.9 percent, at C$121.88, and Canadian Natural Resources shed C$2.91, or 4.6 percent, to C$60.97.
The gold producers' subsector was down 3.3 percent, with Barrick Gold falling C$1.83, or 3.6 percent, to C$49.42, and Kinross Gold dropping C$1.77, or 7.8 percent, to C$20.90.
"The gold stocks are really getting hammered here," said John Kinsey, portfolio manager at Caldwell Securities Ltd.
"They've had a very good run - when gold broke through $900, the gold stocks just went vertical - so there's a little bit of a correction there."
Canadian National Railway was among the day's biggest advancers after it reported a higher fourth-quarter profit on Tuesday and said it did not expect the U.S. economy to slide into a full recession.
CN ended up C$2.45, or 5.5 percent, at C$47.34, while the industrials sector rose 2.7 percent.
Market volume was 492 million shares worth C$10.3 billion. Decliners outpaced advancers 926 to 699. The blue chip S&P/TSX 60 index closed up 0.90 points, or 0.12 percent, at 743.97.
On Wall Street, stocks broke a five-day losing streak as the Dow Jones industrial average was up 298.98 points, or 2.5 percent, at 12,270.17 and the Nasdaq Composite Index rose 24.14 points, or 1.05 percent, to 2,316.41.
Additional reporting by Lynne Olver; Editing by Peter Galloway