TORONTO (Reuters) - Toronto's main stock index was higher for a second straight session yesterday, led by a rally in financial and mining shares that lifted the index back over the 12,000 mark.

The index's mining subsector was up 2.3 percent, after Quadra Mining's C$1.54 billion ($1.51 billion) bid to buy FNX Mining Co. spurred excitement about the potential for new mergers and acquisitions.

Base metals major Teck Resources rose 2.5 percent to C$41.55. FNX also gained almost two percent to C$15.14, while Quadra lost 2.3 percent to C$16.98.

Canadian copper miner Quadra said it planned to buy FNX Mining in an all stock deal, creating a mid-sized base metals company with assets in Canada, the US and Chile.

"We expect more deals to happen. Companies have seen a nice recovery in their stocks so they're going to be able to use that as currency to make acquisitions," said Barry Schwartz, vice-president and portfolio manager at Baskin Financial Services.

"And in the meantime commodity prices have been higher so the companies' balance sheets are starting to improve."

The Toronto Stock Exchange's S&P/TSX composite index closed up 77.37 points, or 0.65 percent, at 12,044.54. All of its 10 sectors were higher.

Strong gains from the TSX's heavily weighted banking issues also helped prop up the index with Royal Bank of Canada, the country's largest lender, up 1.1 percent at C$60.24, and Bank of Montreal gaining 1.2 percent to C$62.31.

Canada's banks delivered strong quarterly results recently, raising hopes that they had put the worst of the financial crisis behind them.

Another driver of the financial sector was data yesterday that showed Canada's composite leading indicator rose 0.8 percent in February, posting its ninth straight gain due to strong household demand and a recovery in manufacturing.

"I'm surprised at the continued strong move on Canadian banks. They're expensive based on current earnings but as the economy recovers, loan loss revisions should drop dramatically which makes earnings grow dramatically for 2011, making the banks look inexpensive on a forward basis," Mr. Schwartz said.

The strong performance from the banks has also renewed hopes that the institutions are primed to raise dividends.