* TSX up 89.63 pts, or 0.74 pct, at 12,198.89
* Five of 10 sectors stronger
* Gold miners drive gains
* Energy issues rise with the price of oil
* Financials sink on euro zone fears (Adds analyst comment, further details)
By Trish Nixon
TORONTO, Aug 10 (Reuters) - Toronto's main stock index rallied for a second day on Wednesday, erasing Monday's dramatic losses, as gold-mining shares rose on record bullion prices, outweighing a sinking financial sector.
The TSX gained even as global stocks slumped on speculation about the strength of French banks holding troubled peripheral euro zone debt that tapped into investors' worst fears about possible contagion from the euro zone debt crisis. [MKTS/GLOB]
The price of gold rose to a record high, extending its biggest rally since 2008, as anxious investors picked up the safe-haven asset, which helped buoy Toronto's resource-heavy index. [GOL/]
"We've managed to outperform the rest of the planet ... mostly on the precious metals sector," said Francis Campeau, a broker at MF Global Canada in Montreal.
"Money is moving out of the banks and into gold stocks or miners."
The Toronto Stock Exchange's S&P/TSX composite index .GSPTSE closed up 89.63 points, or 0.74 percent, at 12,198.89.
The two-day rally put the index into positive territory for the week, wiping out losses from Monday when the index plunged to its lowest level in nearly a year.
Five of the 10 sectors ended higher, led by the heavy-weight materials sector, which includes miners, up 3.6 percent. The gold-mining sub-group added 4.7 percent.
Eight of the top ten influential gainers on the index were precious metal miners. Barrick Gold ABX.TO topped the list, up 6.2 percent C$49.72, followed by Goldcorp G.TO, which added 7 percent to C$50.54.
The energy sector climbed 1.03 percent, boosted by rising oil prices. U.S. crude futures rose 4.5 percent after a government report showing oil inventories fell. [O/R]
Canadian Natural Resources CNQ.TO, up 1.6 percent at C$35.35, and Suncor Energy SU.TO, up 0.9 percent at C$31.28, were among the index's top gainers.
Meanwhile, the financial sector sank 1.2 percent as concerns about the strength of French banks dragged Canada's big banks and insurers lower.
Manulife Financial MFC.TO was the heaviest weight, down 5.2 percent at C$12.50, while Toronto Dominion Bank <TD.TO fell 1.5 percent to C$73.93, and Bank of Nova Scotia BNS.TO lost 1.7 percent to C$51.90.
The banks are sloppy because of the global pressure on them," said Paul Hand, managing director at RBC Capital Markets.
But he noted that despite market jitters there seemed to be a healthy exchange of views as people shifted their portfolios around.
"We're starting to see the asset allocators, with interest rates being so low, take money out of fixed income and increase their equity exposures. That's been one of the underlying supports."
In individual company news, shares of Rona Inc's RON.TO fell 4.9 percent after it reported its quarterly profit dropped a steeper-than-expected 40 percent as Canadian consumers cut spending on its home improvement products. [nN1E7790V2]
CAE Inc's CAE.TO stock fell 2.5 percent after the Canadian company said budget pressure in the United States and Europe could squeeze its military flight simulator business in the short term. [ID:nN1E7791K4]
Quebecor Inc QBRa.TO reported solid growth at its fledgling wireless network and announced it would buy back about 10 percent of its stock, sending its share up 6.9 percent to C$30.19. [ID:nL3E7JA2J7]
Penn West Petroleum Ltd's PWT.TO second-quarter profit more than halved after Alberta wildfires and floods in Saskatchewan hit production, prompting it to lower its full-year output target. Shares of the oil and gas producer still benefited from the broader sector's rise, adding 0.96 percent to C$18.91. (Editing by Jeffrey Hodgson)