TORONTO (Reuters) - Toronto's main stock index finished higher yesterday, lifted by speculation that Potash Corp. of Saskatchewan could be taken over.

Shares of Potash Corp rose more than five percent, leading all advancers, after a Bank of America Merrill Lynch research report touted the idea that Australian mining giant BHP Billiton could afford to make an all-cash bid for the world's largest fertiliser maker.

Potash Corp. stock ended up 5.7 percent at C$106.84.

Fellow fertiliser company Agrium gained 6.4 percent to C$58.90 after it agreed to sell part of a nitrogen fertiliser facility to Terra Industries.

A retreat by gold-mining issues partly offset the gains made by the fertiliser companies, even though the price of gold pushed above $1,060 an ounce. Goldcorp fell 0.5 percent to C$43.80.

Oil hit a one-year high above $79 a barrel, lifting some of the bigger names in the oil and gas group, including a 1.15 percent gain for Nexen Inc to C$26.38 and a 0.45 percent gain in Suncor Energy to C$40.16.

But, EnCana fell 0.94 percent to C$64.34 and Canadian Natural Resources slipped 0.31 percent to C$78.23.

The S&P/TSX composite index closed up 33.63 points, or 0.29 percent, at 11,538.39.

"Clearly it's still a market of stock-picking and that's what is going to drive the market here," said Irwin Michael, portfolio manager at ABC Funds. "But we expect it to continue to be very volatile."

The main index could be swayed by the looming wave of corporate results, with companies such as Canadian National Railway and Potash Corp set to issue financial reports this week.

CIBC World Markets said third-quarter earnings will help gauge the ability of corporate Canada to weather the impact of the rising Canadian dollar, which is up 13 percent since the end of June.

The index's gains came ahead of a Bank of Canada policy statement today, in which the bank will likely hold the line on interest rates and perhaps tinker with its economic forecasts as it waits for firmer evidence that the economic recovery is for real.

"We have a lot of cross-currents," said Sal Masionis, a stockbroker at Brant Securities, pointing to examples such as a relatively high unemployment rate, while the housing sector has shown signs of strength.