CANADA STOCKS-TSX rises on bank earnings, but drop in oil shares limits gain

TORONTO, May 27 (Reuters) - Canada’s main stock index was higher on Wednesday on modest gains in bank shares after Bank of Montreal and National Bank of Canada reported better-than-expected earnings and announced dividend hikes, but the rise was limited by a drop in oil and gas shares.

The Toronto Stock Exchange’s S&P/TSX composite index was up 22.75 points, or 0.15 percent, at 15,073.56 in late morning trade. Eight of the 10 major index sectors were higher.

The index’s financials group gained 0.4 percent, with National Bank up 0.9 percent at C$49.78. Bank of Montreal, however, slipped 0.4 percent to C$77.62.

The index’s energy sector has struggled to deal with a precipitous drop in oil prices that has recently leveled out far below the roughly $100 price of a year ago.

Joe Tatusko, chief investment officer at financial advisory firm Westport Resources in Connecticut, said he sees a dim future for Canadian oil stocks.

“We just see continued weakness ahead,” he said. “You look out west, you’ve got a high cost of oil production, much less competitive today and that’s not likely to change.”

Among the most influential decliners on the index were Crescent Point Energy Corp, which fell 4.3 percent to C$28.32, and Encana Corp, which dropped 1.3 percent to C$15.75.

Crescent Point, Canada’s No. 4 independent oil and gas producer, dropped a day after it said it will buy Legacy Oil + Gas Inc for shares and debt worth C$1.53 billion ($1.23 billion).

The overall energy group retreated 1.0 percent.

After scaling back exposure to Canada’s energy producers last year as oil prices plunged, Tatusko said he needs to see $75 a barrel oil, and natural gas near $4 before coming back in.

Brent, the global crude benchmark, was off 1.6 percent at $62.70 on Wednesday. U.S. natural gas futures were around $2.90.

Meantime, Tatusko expects well-capitalized energy companies to continue to acquire the assets of weaker rivals. “The system needs to clean itself out,” he said.

($1=$1.25 Canadian)

Reporting by Alastair Sharp; Editing by Peter Galloway