(Adds quotes, details on central bank, fiscal spending; updates prices)
* TSX up 353.72 points, or 2.94 percent, at 12,389.58
* All of the TSX's 10 main groups rise; energy jumps 5.6 pct
* Index rises 2.6 percent for the week
By Fergal Smith
TORONTO, Jan 22 (Reuters) - Canada's main stock index scored its biggest rally in more than four years on Friday, led by oil and gas stocks as crude prices surged and investors welcomed hints of more stimulus from global central banks.
Sharp gains on Thursday and Friday left the index 2.6 percent higher for the week, supported by a recovery in crude oil prices and optimism that central banks in Europe and Japan will increase policy stimulus.
"The market was becoming extremely oversold in the short run," said Irwin Michael, portfolio manager at ABC Funds. "Investors were anxiously awaiting for some stability in the commodities, and oil and gas and the mining sector."
U.S. crude prices settled at $32.19 a barrel, up 9.01 percent, as bearish traders who had taken out record short positions scrambled to close them.
The energy sector climbed 5.6 percent, with Suncor Energy Inc up 5.3 percent at C$31.33 and Enbridge Inc advancing 6.2 percent to C$47.42.
A surprisingly big jump in retail sales provided much-needed vigor for a struggling domestic economy.
The Toronto Stock Exchange's S&P/TSX composite index rose 353.72 points, or 2.94 percent, to 12,389.58. It was the sharpest advance since Nov. 30, 2011, and all 10 main groups were in positive territory.
On Wednesday, the index hit its lowest level since August 2012 at 11,531.22.
A decision this week by the Bank of Canada to not reduce interest rates has also lifted stocks by helping to stabilize the Canadian dollar, Michael of ABC Funds said.
It has put the onus on the new Liberal government to raise fiscal spending.
A smart fiscal package spent efficiently would have a positive impact on the Canadian market, said Macan Nia, director, capital markets & strategy, at Manulife Asset Management.
Royal Bank of Canada jumped 5.0 percent to C$69.34. It sold its general insurance arm to Aviva on Thursday.
Toronto-Dominion Bank climbed 3.0 percent to C$51.68, while the overall financial services sector rose 3.1 percent.
Railway stocks also rallied, with a 10.6 percent jump in Canadian Pacific Railway to C$165.74 one day after reporting a profit below expectations on lower freight volumes.
The materials sector, which includes precious and base metals miners and fertilizer companies, added 1.2 percent, while telecom stocks rose 4.1 percent. (Additional reporting by Fergal Smith; Editing by W Simon and Richard Chang)