TORONTO (Bloomberg) - Canadian stocks rose, capping their first monthly gain since August, as banks advanced after Prime Minister Stephen Harper said he would support efforts by lenders to buy assets from abroad.

Royal Bank of Canada and Toronto-Dominion Bank climbed at least 2.7 percent after Harper urged banks to take advantage of their balance sheet strength. Sun Life Financial Inc., Canada's third-largest insurer, rallied 7.8 percent on speculation it ended negotiations to buy parts of Hartford Financial Services Group Inc.

The Standard & Poor's/TSX Composite Index gained 124.17 points, or 1.4 percent, to 8,720.39. The index added 7.4 percent in March, halting a six-month streak of declines. The Standard & Poor's 500 Index rose 1.3 percent yesterday.

"There's hope that some of the government programmes will start to work," said Todd Johnson, a fund manager at BCV Asset Management in Winnipeg, Manitoba, which manages about C$100 million. "We're still at cheap levels, and it's probably going to look pretty wise two years from now if you were buying."

Financial stocks have propelled a 15 percent rally in the Canadian stock benchmark since March 9 after Citigroup Inc. and Bank of America Corp. said they made money in January and February and the US unveiled a plan to help investors buy toxic assets from banks. The measure of 38 banks, brokerages and insurers in the S&P/TSX has surged 27 percent since March 9.

The Canadian stock benchmark gave back some gains yesterday, posting its biggest drop in four weeks, on a retreat in oil and remarks from US Treasury Secretary Timothy Geithner that banks will need more government help.

Canadian lenders could play a leading role in consolidation of the banking industry, Prime Minister Harper said in an interview with the Financial Times. He agreed to support such efforts as an opportunity to advance Canada's standing in global banking.

Royal Bank of Canada, the country's largest lender, rose 2.7 percent to C$36.78. Toronto-Dominion Bank advanced 3.5 percent to C$43.46.

Sun Life climbed C$1.65 to C$22.84. Efforts to buy parts of Hartford are "currently off", the Globe and Mail reported, citing unidentified people familiar with the talks. Sun Life President Jon Boscia told investors recently that the company won't take any "gambles" that could compromise current capital levels, the newspaper said.

A measure of energy producers in the S&P/TSX rose 1.2 percent as oil climbed. Crude, which posted its biggest monthly gain since May, rose 2.6 percent to $49.66 a barrel on the New York Mercantile Exchange.

Crew Energy Inc., which explores for oil in Alberta, rose for the first time in six days, jumping eight percent to C$3.91. Canadian Oil Sands Trust added 4.8 percent to C$24.25.

Canada's economy contracted in January for a sixth straight month because of slumping automobile production and a decline in construction. Gross domestic product fell 0.7 percent during the month, Statistics Canada said in Ottawa, in line with the median estimate of 21 economists surveyed by Bloomberg.

The three-week rally in global stocks will end because valuations still aren't cheap enough to have marked a bottom, while problems with mortgage-backed securities will keep restraining the financial system, Deutsche Bank AG said.

The MSCI World has climbed 17 percent since March 9, when it dropped to the lowest since October 1995.