TORONTO (Reuters) - Toronto's main stock index bounced higher yesterday following two days of steep falls as investors scooped up cheaper shares after fears of a funding crisis for European banks eased and US data showed improved business activity.

Among heavyweight gainers, Canadian Natural Resources jumped 0.8 percent to C$35.33, Bank of Montreal added 0.7 percent to C$57.74, and Barrick Gold Corp. shot 1.9 percent higher to C$48.32.

"After two horrific down days, you'd expect a bounce," said John Kinsey, a portfolio manager at Caldwell Securities.

Market sentiment was boosted partly by news that the European Central Bank said commercial banks do not have to borrow as much as had been expected, easing concerns about how they would repay large emergency loans.

Investors digested a mixed bag of economic data: US Midwest business activity grew more than expected, helping to offset a weak US private sector jobs report, but Canadian GDP figures for April were flat.

Adding to investors' nerves about the shaky global economic recovery and capping the index's gains, commodity prices weakened and Moody's Investors Service announced it may cut Spain's Aaa debt rating.

The Toronto Stock Exchange's S&P/TSX composite index closed up 30.59 points, or 0.27 percent, at 11,294.42. All of the index's 10 main sectors were higher.

On the month, the index was down 3.2 percent, and for the quarter it was down 6.2 percent.

On Tuesday, the TSX suffered its biggest drop since the "flash crash" of May 6 as slowing growth in China, worry over looming euro-zone bank repayments, and a drop in US consumer confidence unnerved stock markets around the world.

"Yesterday was enough to shatter the confidence of even the most optimistic investor," said Barry Schwartz, vice-president and portfolio manager at Baskin Financial Services.

"Today, it seems there's some bargain-hunting going on, in Canada at least."