March 10, 2009 / 8:25 PM / in 9 years

CANADA STOCKS-Bank stocks power TSX to 4 percent gain

* TSX rallies 313.37 points 7,880.41

* Financials headline rise with 12.04 pct surge

* Materials only sector closing lower (Adds comments, details and official numbers)

By Frank Pingue

TORONTO, March 10 (Reuters) - Toronto’s main stock index jumped 4 percent on Tuesday to close at its highest level in over two weeks as upbeat news out of the U.S. financial sector lit a fire under bank issues.

Heavily weighted financials rallied after a Citigroup (C.N) memo to staff by the bank’s chief executive provided reassurance on its prospects. It also help some investors turn hopeful that recent government measures to help stem the U.S. economy’s slide are helping.

Shares of Royal Bank of Canada (RY.TO), the key contributor to the TSX’s gain, surged 14.41 percent to C$32.94, followed by Toronto-Dominion Bank (TD.TO), which ended 11.05 percent higher at C$38.50.

The S&P/TSX composite index .GSPTSE closed up 313.47 points, or 4.14 percent, at 7,880.41. It marked the TSX’s biggest percent gain since Dec. 8, when it rose 5.55 percent.

Some experts felt a good portion of the TSX’s latest gain was brought on by short covering, an investment technique that can exaggerate rallies in volatile markets.

Short-sellers are traders who sell borrowed stock with the hope of buying it back later on at a lower price. But if they feel a stock will keep going up, they are forced to buy the shares back to cover their positions, or repay the loan.

“One can’t help but be a little skeptical because it seems more of a short cover rally rather than saying all is well and cured in the financial system and with financial institutions,” said Ian Nakamoto, director of research at MacDougall, MacDougall & MacTier.

Weakness among financial stocks was a major reason the TSX composite skidded last week to its lowest level in more than five years.

$1=$1.28 Canadian Editing by Rob Wilson

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