TORONTO (Reuters) - Toronto's main stock index rose 1.7 percent yesterday, led by the heavily weighted financial sector, on hopes that the multi-billion-dollar stimulus package unveiled in Tuesday's Canadian budget and further US government action will promote economic stability.

The market saw the US moving quickly to stabilise its ailing banking sector, which helped to boost US stocks, as lawmakers prepared to vote on a stimulus package to help the recession-hit economy.

Five of Canada's biggest financial institutions were among the top 10 advancers, with the financial group as a whole up 4.7 percent.

Toronto Dominion Bank gained 6.7 percent to C$42.38, while Bank of Nova Scotia rose 5.3 percent to C$31.17. Royal Bank of Canada, CIBC , and Manulife were also big gainers.

"We've got some rather magnificent gains in the financials south of the border and that's following through into Canada. That's the primary driver today," said Lex Kerkovius, senior research analyst at McLean & Partners Wealth Management Ltd., in Calgary.

The S&P/TSX composite index unofficially closed up 1.7 percent, or 149.29 points, at 8,908.92, but off the highs seen after the US Federal Reserve held rates steady and said it was prepared to buy longer-term US government debt.

Eight of the TSX's 10 main groups advanced.

The financials were also supported by plans outlined in Tuesday's federal budget. The government said it would commit C$50 billion more to a program that buys insured mortgages and would also give itself the authority to inject capital into banks and financial companies that need support.

"No one is saying that the Canadian banks are going to go the way of the US banks, but it's better to have something in place in case it happens," said Ian Nakamoto, director of research at MacDougall, MacDougall & MacTier.

The oil group was also in focus, rising 2.22 percent after the first takeover attempt was launched in the oil sands sector since slumping oil prices undercut multibillion-dollar expansion plans.

Shares in oil sands developer UTS Energy Corp. more than doubled after French oil major Total SA launched an unsolicited C$617 million bid for the company. UTS, the most heavily traded stock, rose 90 Canadian cents to C$1.73 as analysts said a higher offer may come.