TORONTO (Reuters) - Toronto's main stock index ended higher yesterday as a rise in oil prices fuelled energy shares while banks rallied as investors spruced up their portfolios ahead of the end of the quarter.

Canadian banks were among the key drivers behind the TSX's rally, and analysts said this was largely due to end-of-quarter "window dressing", when portfolio managers sell stocks with big losses and buy the quarter's better-performing issues to help improve their returns.

Shares of Royal Bank of Canada rose 2.4 percent to C$48.69, followed by Bank of Nova Scotia, whose shares closed up 2.8 percent at C$44.24. The TSX index's financial group ended up 1.7 percent.

"You don't want to have too much cash and at the same time you want to be prudent, so when it comes to buying things, the banks paying decent dividends are probably where people want to go," said Irwin Michael, portfolio manager at ABC Funds.

"People want to have a little money in the marketplace so they are buying the safer stocks.

"But the market is very thin and moves can be extremely exaggerated in this environment."

The index's energy sector ended the session up 1.4 percent, helped largely by the price of oil, which rallied more than three percent on reports of rebel attacks on an oil facility in Nigeria and hopes for an economic rebound.

Shares of Canadian Natural Resources rose two percent to C$60.91, while EnCana Corp. ended up 1.3 percent at C$57.56.

The S&P/TSX composite index rose 87.01 points, or 0.84 percent, to 10,476.77 after last week's one percent rise.

The TSX is up 20 percent in the second quarter with just one session to go before the quarter ends.

Also helping investor sentiment was a rally in global stocks on optimism about a stronger outlook for euro zone economies.

Trading for the rest of the holiday-shortened week is expected to be muted but moves could be exaggerated by thin liquidity.

The TSX will be closed on Wednesday, July 1, for Canada Day, while US markets will be closed on Friday, July 3, for Saturday's July 4 Independence Day holiday.

Among stocks that helped to limit the TSX's rally was Gildan Activewear, whose shares fell 9.6 percent to C$16.82 after the T-shirt maker said it would halt operations for two weeks at some of its plants in Honduras to control inventory.