TORONTO (Reuters) - Toronto's main stock index closed higher yesterday for a seventh straight session after a surprise move by the US Federal Reserve to revive the battered US economy bolstered investor confidence.

The US central bank said it would spend up to $300 billion to buy long-term US Treasuries for the first time in four decades. Investors saw the programme as a fresh way of promoting financial stability, raising hope for an earlier recovery by Canada's largest trading partner.

The news sparked an instant rally in North American equities and brought Toronto's key index to its highest close since February 13.

Earlier in the session, it had fallen by as much as three percent.

The massive spending program also stirred concern over inflation, boosting bullion prices along with a handful of gold-mining shares.

Among the issues that led the TSX higher, Barrick Gold Corp. jumped 8.85 percent to close at C$39.85, while Goldcorp ended up 9.18 percent at C$39.60.

"It's basically all the Fed," said Levente Mady, broker at MF Global Canada in Vancouver. "You've got low (US) rates to stay for awhile, which the equity markets like and that helped make everything go up."

The S&P/TSX composite index rose 69.5 points, or 0.81 percent, to close at 8,629.1. Seven of the 10 TSX sectors ended higher, led by a 5.42 percent gain in the materials group.

Shares of financial companies also helped provide much of the lift to the TSX as investors figured the Fed's move would help ease lending in the US.

Insurer Manulife Financial rose 7.9 percent to C$14.89, while Bank of Nova Scotia rallied 1.8 percent to C$32.27.

The financials index, which accounts for about 33 percent of the TSX, rose one percent in the latest session and is now up a staggering 29 percent in just over a week.

That has helped boost the TSX comfortably off the five-year low it hit earlier in March, but some experts now think a pullback may soon be in the cards.

"We've already had a good rally so certainly you can make the argument that the stock market is overbought to a certain degree at this point," Mady said. "But certainly the path of least resistance looks like it's upwards."

Energy shares capped index's rise as oil prices tumbled after data that showed higher US crude inventories and the World Bank cut its 2009 forecast for China's economic growth.

Shares of Suncor Energy fell six percent to C$31.20, while EnCana Corp. shares fell 1.79 percent to C$50.58.