October 3, 2008 / 3:30 PM / 10 years ago

UPDATE 2-Toronto stocks rally back with Potash, Agrium

*TSX bounces after near 7-percent drop on Thursday

*CIBC rises on move to limit U.S. residential exposure

*Materials get 8.5 pct boost from top gainer Potash

*Market awaits U.S. House vote on big bailout plan

(Adds details, analyst’s comments, updates figures)

TORONTO, Oct 3 (Reuters) - The Toronto Stock Exchange’s main index rose sharply on Friday morning after Thursday’s near 7-percent drop, with commodity shares rebounding ahead of a vote by the U.S. House on the revised $700 billion bailout package for the financial industry.

The materials group led the way higher, up 8.5 percent, with fertilizer producers Potash Corp of Saskatchewan POT.TO up 11.3 percent at C$112.45, and Agrium Inc AGU.TO up 6.8 percent to C$48.05. [ID:nN03334235]

Both stocks plunged on Thursday after Merrill Lynch downgraded them because of uncertainty about earnings in the fertilizer sector.

Investors bought into the market after two “very severe trading sessions” this week, said Paul Taylor, chief investment officer at BMO Harris Investment Management Inc.

But markets were also digesting signs of weakening economies, including data released Friday that showed the U.S. reported its biggest monthly job loss in 5-1/2 years. [ID:nSP58422]

“They do indicate we’re in for a period of economic slowing, which is not surprising given where business and consumer sentiment are,” Taylor said.

Shortly after 11 a.m. (1500 GMT), the S&P/TSX composite index .GSPTSE was up 431.71 points, or 3.96 percent, at 11,332.25, with all but one of its 10 main groups higher. The small health-care group was down 1.2 percent.

The heavyweight energy sector rose 5 percent with EnCana Corp (ECA.TO) up 5.8 percent at C$62.91, while Canadian Natural Resources (CNQ.TO) rose 7.3 percent to C$69.87.

Financial services rose 2.5 percent, with Canadian Imperial Bank of Commerce (CM.TO) up 3.9 percent at C$60.09 after it said it will limit its U.S. residential exposure through a $1.050 billion agreement with a fund arranged by Cerberus Capital Management. [ID:nN03323380]

“Any move to strengthen the balance sheet at CIBC, or any of the banks, is going to be viewed positively,” Taylor said.

“That is the cloud that hangs over the financial services industry and by association, the Canadian financial industry.”

Still, the market’s focus is trained on the fate of the revised U.S. financial rescue plan, Taylor said.

The U.S. House of Representatives is expected to vote on the plan, aimed at allowing the U.S. Treasury to mop up bad mortgage-related assets from financial institutions, later on Friday. [ID:nSP58422] For more links to stories, see: [ID:nCRISIS]

In earnings, Corel Corp CRE.TO posted a higher quarterly profit as revenue rose in its key segments but the consumer software maker trimmed its 2008 outlook. [ID:nN03321534] Corel stock was flat.

Russian billionaire Oleg Deripaska said the global financial crisis forced him to divest his 20 percent stake in auto parts maker Magna MGa.TO to creditors that helped fund the $1.4 billion deal. [ID:nL3629815]

Magna fell 13.3 percent to C$42.67. ($1=$1.08 Canadian) (Reporting by Jennifer Kwan; Editing by Peter Galloway)

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