TORONTO (Reuters) - Toronto's main stock index ended higher for a second straight session yesterday as commodity-linked stocks surged after China soothed investor worries by saying Europe was a key investment market.

Resource issues led the gains as oil climbed above $74 a barrel, while gold and base metal prices were also firmer. The energy and materials sectors rose 4.2 percent and 2.2 percent, respectively.

Canadian Natural Resources rose 4.9 percent to C$36.48, while Suncor Energy climbed 5.5 percent to C$32.37. Imperial Oil climbed 3.7 percent to C$40.89 and EnCana Corp rose 3.9 percent to C$32.42. Teck Resources was up 6.6 percent at C$36.79.

Market watchers said the catalyst for the rise in the resource-heavy TSX index was China's dismissal of a report that had said it was concerned about its euro-zone bond holdings. Beijing said Europe remains a key investment market for its foreign exchange reserves, helping to push up the euro and global equity markets.

"I think for the markets to seize upon the China news and push everything up across the board speaks to how volatile market sentiment continues to be," said Elvis Picardo, analyst and strategist at Global Securities in Vancouver. "It just speaks of how oversold the markets have been in the short term. Sentiment has been turning on a dime on a day-to-day basis," he said.

The Toronto Stock Exchange's S&P/TSX composite index finished the session up 205.22 points, or 1.78 percent, at 11,749.12, with the upswing spread across most sectors.

Bruce Latimer, trader at Dundee Securities, said the TSX rally could also be a result of investors squaring positions.

"You've also got a month-end for the US market tomorrow and the Canadian month-end is on Monday so I think some people are just sort of squaring positions and picking up things up at bargain prices here for month end," he said.

The index's hefty financial group was its lone sector in the red, slipping just 0.01 percent. Earlier, it was down as much as 1.1 percent.

Three big banks reported higher profits yesterday but their results came in below lofty market expectations.

Royal Bank of Canada, Canada's biggest bank, fell 4.44 percent to C$56.85, while No. 5 Canadian Imperial Bank of Commerce sank 4.34 percent to C$72.02. However, Toronto-Dominion Bank, the No. 2 lender, was up 0.8 percent at C$73.38.