CANADA STOCKS-TSX breaks higher, led by financials and energy

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* TSX up 166.23 points, or 1.23 percent, at 13,636.06

* Seven of the TSX’s 10 main groups rise

TORONTO, Dec 1 (Reuters) - Canada’s main stock index rallied on Tuesday to its highest closing level in nearly four weeks, led by financials following stronger-than-expected earnings for two of the country’s main banks, while resource stocks also gained.

Bank of Montreal rose 1.4 percent to C$78.22 after reporting higher quarterly profit and upping its dividend.

Bank of Nova Scotia also reported higher quarterly profit, but weakness in its capital markets business and an increase in bad energy loans kept optimism in check, with the stock dipping 0.1 percent to C$60.83.

Bank earnings are still moving in the right direction, according to Ian Nakamoto, director of research at MacDougall, MacDougall & MacTier, adding that “loan losses still seem to be manageable.”

The overall financials group, which accounts for more than one-third of the index’s weight, climbed 1 percent.

Energy stocks climbed 1.3 percent, with Suncor Energy Inc up 2.4 percent to C$37.79.

Canadian Oil Sands Ltd rose 4.3 percent to C$8.93 following news late on Monday that shareholders will have an extra month to consider Suncor’s hostile takeover bid , while the company set a 2016 capital expenditure budget 35 percent lower its projection for this year.

The Toronto Stock Exchange’s S&P/TSX composite index closed up 166.23 points, or 1.23 percent, to 13,636.06, with seven of the index’s 10 main groups in positive territory.

The materials group rallied 1.5 percent as strength in gold stocks offset a 1.4 percent drop in Potash Corp to C$26.65.

Valeant Pharmaceuticals International Inc surged 9.6 percent to C$131.89, extending its rebound from a C$92.65 trough on Nov 18.

ProMetic Life Sciences shares plunged 11.3 percent to C$3.14 after the company said it will transition its drug to treat Type 2 diabetes to a new placebo-controlled trial.

U.S. crude prices settled at $41.85 a barrel, up 0.48 percent, while Brent crude lost 0.4 percent to $44.42. (Reporting by Alastair Sharp; Editing by James Dalgleish and David Gregorio)