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TORONTO (Reuters) - The Toronto Stock Exchange's main index closed with a huge gain on Tuesday but the rise paled against the record-setting surge it started the day with as it played catch-up with Wall Street's big rally on Monday, when Canadian markets were closed.
The benchmark index soared more than 1,600 points, or 18 percent, to its biggest gain ever shortly after the market opened, following big rises on world stock markets on Monday as investor jitters about the stability of the financial system eased.
Canadian markets were closed on Monday for the Thanksgiving Day holiday.
On Tuesday, markets also cheered a U.S. plan to inject $250 billion into banks, following similar measures in Europe, a move designed to get banks lending to each other again.
As the day progressed, the euphoria faded a bit and the S&P/TSX composite index pared its gains and closed up 890.50 points, or 9.82 percent, at 9,955.66. All of its 10 sectors were higher.
"We've had a very traumatic experience as investors over the last week where we've had markets that have been cratering day after day," said Rick Hutcheon, president and chief operating officer at RKH Investments. "We've had dramatic worldwide central bank intervention into the capital markets at an unprecedented level."
"Now the focus is going to turn to how deep that valley is for the world economic situation. I don't believe this will be a V-bottom. This will be a protracted U. What's really critical here is that sentiment and confidence and stability and rationality return to the market."
U.S. stocks, which rose at the open, ended down as investors focused on a dismal outlook for earnings and the economy.
The Dow Jones industrial average fell 76.62 points, or 0.82 percent, to 9,310.99, while the Nasdaq Composite Index ended down 65.24 points, or 3.54 percent, at 1,779.01.
Steve Ibel, institutional equities trader at Beacon Securities, in Halifax, Nova Scotia, said the Toronto market had been oversold in recent weeks and he approached the rally with caution.
"It's a relief rally in a bear market," Ibel said.
As of Tuesday's close, the benchmark index is down more than 30 percent from its peak, and has been in a bear market, commonly defined as a 20 percent drop from its peak, for about three weeks.
Among Tuesday's gainers, energy stocks rose 14.6 percent even as the price of oil retreated and held just above $80 a barrel as concerns about a global recession overcame bank rescue optimism.
In the oil patch, EnCana Corp jumped 15.1 percent to C$55.23.
The financials group, which accounts for a third of the index, rose 12.7 percent. Toronto-Dominion Bank jumped 13.1 percent to C$58.99.
Manulife Financial rose 14.5 percent to C$30.50. Canada's biggest insurer said on Monday it expects credit losses related to the global financial crisis to reduce earnings by about C$250 million in the third quarter, but Manulife said on Tuesday it has no plans to cut its dividend.
Market volume was 656.5 million shares worth C$10.07 billion. Advancers outpaced decliners 1,395 to 328. The blue chip S&P/TSX 60 index closed 56.40 points, or 10.32 percent, higher at 602.65.
Reporting by Jennifer Kwan; Editing by Peter Galloway