TORONTO (Reuters) - Toronto's main stock index closed higher yesterday in a broad advance led by financial issues, which were supported by a healthier profit at Citigroup and an acquisition by Royal Bank of Canada.

The Toronto Stock Exchange's S&P/TSX composite index gained 58.94 points, or 0.47 percent, to close at 12,668.01. Nine of the 10 main TSX sectors rose, with financials up more than one percent.

Investors were still encouraged by the prospect that the Federal Reserve will offer extra economic stimulus to the US economy, which has helped fuel the TSX's recent rally.

"There's not much to be negative on. Central banks have let it be known that interest rates will stay low for a long period of time. They're going to be providing liquidity and some of that will go into the stock market and other assets. Earnings are continuing to move up and valuations are reasonable," said Ian Nakamoto, director of research at MacDougall, MacDougall & MacTier.

"Investor sentiment is turning more positive but I wouldn't say it's euphoric."

US bank Citigroup reported a better than expected quarterly profit, stealing the spotlight from fears about the exposure of major US banks to foreclosure losses.

Royal Bank rose 1.17 percent to C$56.20 after it offered to buy British fund manager BlueBay Asset Management for £963 million ($1.5 billion) as Canada's biggest bank looked to cement its position as a top 10 global wealth manager.

Other banks were also strong performers, with Canadian Imperial Bank of Commerce adding 1.4 percent to C$78.36, while Bank of Montreal and Bank of Nova Scotia each rose nearly one percent.

The Canadian dollar dropped against the US dollar yesterday, slipping further from its recent flirtation with parity, ahead of the Bank of Canada's interest rate decision today.

The market is pricing in a near certainty that the central bank will hold its overnight target rate at one percent, while the tone of its statement will be closely followed for further direction.

The currency was a "laggard today" in anticipation of potentially dovish news to accompany the Bank of Canada's policy decision, and the central bank's Monetary Policy Report tomorrow,, said Jack Spitz, managing director of foreign exchange at National Bank Financial.