TORONTO (Reuters) - Toronto's key stock index rose four percent yesterday to close at its highest level in over two weeks as Citigroup said it was profitable during the first two months 2009, easing some investor concerns about the battered US financial system.

In a memo to staff, Citigroup's chief executive provided reassurance on the bank's prospects. The news helped light a fire under the TSX's heavily weighted financial index, which rallied 12 percent for its biggest one-day percent gain in five months.

Shares of Royal Bank of Canada, the key contributor to the TSX's gain, surged 14.41 percent to C$32.94, followed by Toronto-Dominion Bank, which ended 11.05 percent higher at C$38.50.

The S&P/TSX composite index closed up 313.47 points, or 4.14 percent, at 7,880.41. It marked the TSX's biggest percent gain since December 8, when it rose 5.55 percent.

Some experts felt a good portion of the latest rise was brought on by short covering, an investment technique that can exaggerate rallies in volatile markets.

Short-sellers are traders who sell borrowed stock with the hope of buying it back later on at a lower price. But if they feel a stock will keep going up, they are forced to buy the shares back to cover their positions, or repay the loan.

"One can't help but be a little skeptical because it seems more of a short cover rally rather than saying all is well and cured in the financial system and with financial institutions," said Ian Nakamoto, director of research at MacDougall, MacDougall & MacTier.

Weakness among financial stocks was a major reason the TSX composite skidded last week to its lowest level in more than five years.

The materials sector was the index's only group to end yesterday's session lower, falling 3.3 percent as gold producers retreated, with bullion sliding below $900 an ounce .

Barrick Gold Corp. tumbled eight percent to C$33.30, and Goldcorp ended down 6.98 percent at C$33.99.

Energy stocks also helped fuel the index's rally, climbing 2.93 percent ahead of an OPEC meeting this weekend to decide whether to cut oil production.

Shares of Canadian Natural Resources ended 5.99 percent higher at C$40.89, while Talisman Energy rallied 4.34 percent to C$12.51.

"I think people are getting enthusiastic that OPEC is going to cut production and demand will stabilise," said Mr. Nakamoto.