March 12, 2009 / 9:12 PM / 9 years ago

CANADA STOCKS-TSX closes at 3-week high, bank shares surge

* Index closes 3.39 percent higher at 8,282.27

* Financials rally on upbeat U.S. bank news

* Energy issues buoyed by higher oil prices (Adds details)

By Frank Pingue

TORONTO, March 12 (Reuters) - Toronto’s key stock index surged to its highest close in more than three weeks on Thursday as Canadian bank shares got a lift after another U.S. bank said it had started the year with a profit.

Weighty energy shares also played a major role in lifting the resource-heavy index to a third straight triple-digit gain, rising on an 11 percent jump in oil prices.

But it was the financials index that paced the index after Bank of America Chief Executive Kenneth Lewis said the bank was profitable in January and February, which echoed statements by Citigroup and JP Morgan executives in the two previous sessions. [ID:nN12368897]

Shares of insurer Manulife Financial (MFC.TO), the main contributor to the index’s rally, rose 13 percent to C$12.70, while Royal Bank of Canada (RY.TO) shares were up 4 percent at C$35.00.

Toronto’s key index has rallied 9.5 percent over the past three sessions and some analysts said that even if it does retreat soon, it will not pierce the more than five-year low it touched late last week.

“So we’re fairly close to a top here for the next day or two, but even if we do have a pullback in the next week or so, the lows should be a little higher,” said Levente Mady, broker at MF Global Canada, in Vancouver, British Columbia.

The S&P/TSX composite index .GSPTSE ended the session up 271.25 points, or 3.39 percent, at 8,282.27, which marked its highest closing level since Feb. 17.

Eight of the TSX’s 10 sectors ended the session higher, led by a 5.58 percent rally in the financials index and followed by a 5 percent rise in the energy group.

Mady said a good chunk of the index’s gains were due to short-covering, which 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.

Energy shares, which account for about 20 percent of the overall index, rose as oil prices jumped ahead of an OPEC meeting this weekend at which the group is expected discuss stricter compliance with its existing output cuts.

Shares of Canadian Natural Resources (CNQ.TO) jumped 6.9 percent to C$48.01, while Suncor Energy (SU.TO) shares ended 6 percent higher at C$32.27.

Both were key key issues behind the rise in the S&P/TSX composite, which recorded its third straight triple-digit higher close.

Mady said Friday’s Canadian jobs report, which the market expects to show the economy shed 52,500 jobs in February, will be the next focal point for investors.

$1=$1.28 Canadian Editing by Peter Galloway

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