TORONTO (Reuters) - Canada's main stock index closed almost 1 percent higher on Tuesday with financial and energy shares leading the gains after investor confidence got a shot in the arm from data showing a pick-up in German economic sentiment.
German analyst and investor sentiment soared to its highest level since April 2010, beating all expectations with a third successive increase.
News of a possible merger between Office Depot Inc, the No. 2 U.S. office supply retailer, and smaller rival OfficeMax Inc lifted U.S. stocks and also encouraged the Canadian market.
"The equity markets in Europe and the U.S. are very strong today, and Canada is getting dragged along," said Levente Mady, vice president and senior portfolio manager at PI Financial Corp.
The Toronto Stock Exchange's S&P/TSX composite index <.gsptse> unofficially closed up 123.58 points, or 0.97 percent, at 12,810.21. Nine of the 10 main sectors on the index were higher.
"It's sentiment driven. You've seen a lot less negative news flow and that is a positive for the market," said Kevin Headland, director, portfolio advisory group, at Manulife Asset Management.
Shares of life insurer Great-West Lifeco
Financial shares, the index's weightiest sector, rose 1.2 percent, with Royal Bank of Canada
Several Canadian banks will report quarterly results next week, and investors are looking for stronger profit margins and growth.
"Dividends remain intact and relative to the (broader) TSX the banks remain very attractive to Canadian investors," Headland said.
The energy sector advanced 1.1 percent, with TransCanada Corp
Oil prices rose as traders grew bullish amid a rally in U.S. stock markets, even as U.S. pipeline bottlenecks and European economic concerns threatened to weigh on oil markets.
The materials sector, which includes mining stocks, slipped 0.2 percent, tracking lower gold prices.
Gold fell near a six-month low on Tuesday, holding just above $1,600 an ounce, as signs of an improving global economic outlook dented bullion's safe-haven appeal.
In other company news, Inmet Mining Corp
(Editing by Peter Galloway)