TORONTO (Reuters) - Toronto's main stock index closed at its highest level in more than two years yesterday as commodity prices soared in reaction to the US Federal Reserve's plan to stimulate the US economy.

The Toronto Stock Exchange's S&P/TSX composite index finished the session up 207.67 points, or 1.64 percent, at 12,878.79, its strongest close since September 19, 2008, led by soaring energy and materials sectors, up 3.4 percent and 2.5 percent, respectively.

The surge higher overpowered a drop in the shares of fertiliser giant Potash Corp., which was the top net loser on the market. Potash skidded 3.3 percent to C$141.43, after the Canadian government said after the market close on Wednesday it would block Anglo-Australian miner BHP Billiton's $39 billion bid acquire the company and left little room for a modified offer

Fund managers and analysts said the fallout will affect just a few major companies, and that Canada remains mostly open for business. Rejection of the bid could also prompt more clarity on existing rules on foreign investment.

Elvis Picardo, analyst and strategist at Global Securities in Vancouver, said it's "quite remarkable that the stock hasn't reacted more adversely".

"The two factors that are supporting it are extremely positive sentiment in the overall markets. Secondly, the stock is being seen as a fairly attractive investment at these levels," he said.

Seven of the TSX index's 10 main groups ended higher.

Big names on the upside included Suncor Energy, up 7.8 percent at C$35.48, and Canadian Natural Resources , which rose 4.2 percent to C$39.33. Both were bolstered by a rise in the oil price above $86 a barrel, as well as earnings that beat market expectations.

Barrick Gold rose 1.1 percent to C$49.20, and Teck Resources climbed four percent to C$47.80, as commodity-related stocks surged on the Fed's announcement on Wednesday that it would buy $600 billion more in government bonds by the middle of next year to try to revive the US economy.