TORONTO (Reuters) - Toronto's main stock index rose 1.7 percent on Wednesday, led by the heavily weighted financial sector, on hopes that the multibillion-dollar stimulus package unveiled in Tuesday's Canadian budget and further U.S. government action will promote economic stability.
The market saw the United States moving quickly to stabilize its ailing banking sector, which helped to boost U.S. stocks, as lawmakers prepared to vote on a stimulus package to help the recession-hit economy.
Five of Canada's biggest financial institutions were among the top 10 advancers, with the financial group as a whole up 4.7 percent.
Toronto Dominion Bank gained 6.7 percent to C$42.38, while Bank of Nova Scotia rose 5.3 percent to C$31.17. Royal Bank of Canada, CIBC, and Manulife were also big gainers.
"We've got some rather magnificent gains in the financials south of the border and that's following through into Canada. That's the primary driver today," said Lex Kerkovius, senior research analyst at McLean & Partners Wealth Management Ltd., in Calgary.
The S&P/TSX composite index closed up 1.67 percent, or 146.60 points, at 8,906.23, but off the highs seen after the U.S. Federal Reserve held rates steady and said it was prepared to buy longer-term U.S. government debt.
Eight of the TSX's 10 main groups advanced. The blue chip S&P/TSX 60 index closed 1.96 percent higher at 538.02.
The financials were also supported by plans outlined in Tuesday's federal budget, which won key backing from the Opposition Liberals on Wednesday. The government said it would commit C$50 billion more to a program that buys insured mortgages and would also give itself the authority to inject capital into banks and financial companies that need support.
Canadian banks were ranked last year by the World Economic Forum as the soundest in the world.
"No one is saying that the Canadian banks are going to go the way of the U.S. banks, but it's better to have something in place in case it happens," said Ian Nakamoto, director of research at MacDougall, MacDougall & MacTier.
The oil group was also in focus, rising 2.22 percent after the first takeover attempt was launched in the oil sands sector since slumping oil prices undercut multibillion-dollar expansion plans. The move by French oil major Total SA raised hopes of similar deals or sweetened offers.
"Every time you get a deal there's that kind of speculation out there. Whether or not anything comes out of it we'll have to wait and see," said Kerkovius. "I don't want to hold my breath right now because most are capital constrained still."
Shares in oil sands developer UTS Energy Corp more than doubled after Total launched an unsolicited C$617 million bid for the company. UTS, the most heavily traded stock, rose 90 Canadian cents to C$1.73 as analysts said a higher offer may come.
The takeover bid also gave a boost to Teck Cominco, which rose 6.25 percent to C$5.95 on speculation that Total could also emerge as a bidder for Teck's stake in the Fort Hills oil sands project.
The materials sector fell 1.48 percent, partly on weakness in the price of gold. Six gold issuers were among the top 10 biggest movers on the downside, including Barrick Gold, down 3.5 percent at C$43.98, and Goldcorp, down 4.6 percent at C$33.77.
On Wall Street, financials were in the spotlight on reports that plans were advancing to create a "bad bank" that would allow financial institutions to move toxic assets off their books.
The Dow Jones industrial average finished up 2.46 percent at 8,375.45. The Nasdaq ended up 3.55 percent at 1,558.34.
Reporting by Ka Yan Ng; editing by Rob Wilson