June 24, 2009 / 9:13 PM / in 8 years

CANADA STOCKS-TSX rallies 2 percent on OECD's economic outlook

* TSX rises 204.21 points to 10,100.93

* Banks and insurers lead latest rally

* TSX still down 1.8 percent on the week (Adds details)

By Frank Pingue

TORONTO, June 24 (Reuters) - Toronto’s main stock index shot higher on Wednesday after an OECD report said the global economic outlook has improved for the first time in two years.

The TSX’s financial group led the rally with a gain of 2.74 percent as the Organisation for Economic Co-operation and Development said the global downturn is close to a bottom and a recovery is seen next year. [ID:nLN270829]

That helped lift shares of Royal Bank of Canada (RY.TO) 3.2 percent to C$45.49, while insurer Manulife Financial (MFC.TO) followed with a gain of 4.2 percent to C$21.09.

The latest TSX rise came after Tuesday’s modest gain and Monday’s 453-point selloff, which was spurred by a World Bank warning that prospects for the global economy remained “unusually uncertain”. [ID:nSGP000012] Monday’s drop was the TSX index’s biggest point loss since December.

All 10 of the Toronto Stock Exchange’s main sectors rallied on Wednesday after the the OECD said that the slowdown in its 30 member countries was near the bottom.

“Investors are overreacting to both the bad news and the good news, which tends to be a characteristic of economies that are in the process of turning,” said Kate Warne, Canadian market strategist at Edward Jones in St. Louis, Missouri.

“So it’s not just that people saw good prices, it’s that they are really overreacting to the slight bit of good news today, just like they overreacted to a bit of not so good news on Monday.”

The S&P/TSX composite index .GSPTSE rose 204.21 points, or 2.06 percent, to 10,100.93. It is still down 1.8 percent on the week because of the steep Monday selloff.

Gold-miners were also among the key drivers behind the rally, drawing support from gold prices that ended higher even though they relinquished some early gains after the U.S. Federal Reserve said inflation would stay subdued for some time. [ID:nLO94369]

Goldcorp (G.TO) ended up 2.4 percent at C$40.48, while Kinross Gold (K.TO) rose 5 percent to C$21.13.

The Fed, as expected, left its benchmark fed funds rate at a range of zero to 0.25 percent, and stuck to its program of buying U.S. government bonds and mortgage-related debt. [ID:nN24163547]

The TSX pulled back slightly after the announcement as the U.S. central bank did not suggest in its statement that it sees any notable economic recovery any time soon. But the Toronto market reclaimed much of the drop and exited the session with most of its earlier gains intact.

$1=$1.16 Canadian Editing by Rob Wilson

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