TORONTO (Reuters) - Toronto's main stock market index rallied yesterday as energy shares climbed in tandem with oil prices and financial shares gained as results from some of Canada's big banks topped market expectations.

Four banks reported results yesterday that were stronger than expected, even as they set aside more money to cover bad loans.

Shares of Toronto-Dominion Bank climbed 6.8 percent to C$53.69, while Bank of Nova Scotia rose 0.4 percent to C$37.90. National Bank of Canada was up 3.6 percent at C$51.30.

The bank earnings helped to fuel optimism about an economic recovery, said Paul Harris, portfolio manager at Avenue Investment Management.

"People are feeling that the worst may be over or things are getting better, and at least there's a stabilisation in the financial system," he said.

However, Canadian Imperial Bank of Commerce was a top net loser, falling 4.5 percent to C$54.47, as its results were hurt by a raft of write-downs and investors were disappointed by the performance of its key retail operations.

The S&P/TSX composite index closed 250.21 points, or 2.47 percent, higher at 10,392.37, with seven of its 10 main groups rising. On Wednesday the index fell 143.74 points, or 1.4 percent.

"The big dips that we've seen occasionally these days seem to be met with a lot of buying in the next day or two," said Elvis Picardo, analyst and strategist at Global Securities in Vancouver.

Such buying into sell-offs could indicate a change in sentiment and that investors don't want to be left behind, Picardo said .

The price of oil rallied to a six-month high after Opec decided to keep output unchanged and government data showed a steep drop in US crude inventories. Oil settled above $65 a barrel.

Oil company Canadian Natural Resources rose 4.5 percent to C$64.52, while Petro-Canada climbed 4.8 percent to C$48.49.

The index's materials group rose 2.8 percent on firmer metals prices, with Barrick Gold up 3.2 percent at C$41.47.