TORONTO (Bloomberg) — Canadian stocks rose for a second day, extending a weekly gain, as companies including Canadian National Railway Co. and Ford Motor Co. reported better-than-estimated profit and most lenders passed a European stress test.

Toronto-Dominion Bank, Canada's second-largest bank, gained one percent as lenders rallied. Canadian National Railway, the country's biggest railroad, advanced two percent after its second-quarter profit topped the average analyst estimate by 13 percent. Harry Winston Diamond Corp., a diamond retailer and mining company, plunged 11 percent after agreeing to purchase Kinross Gold Corp.'s indirect interest in a diamond mine.

The Standard & Poor's/TSX Composite Index rose 46.45 points, or 0.4 percent, to 11,714.21.

"There was a lot of nervousness leading up to this that some of the big guys were not going to pass," Bruce Campbell, president of Campbell & Lee Investment Management Inc. in Oakville, Ontario, said of the stress tests. "The fact that the big ones passed is definitely a positive."

The S&P/TSX rallied 1.2 percent this week on forecast- beating earnings from US companies. Eighty-five percent of S&P 500 companies that have reported quarterly earnings since July 12 have topped the average analyst estimate. Canadian companies including Rogers Communications Inc., Teck Resources Ltd. and GoldCorp Inc. are scheduled to report financial results over the next week.

The S&P/TSX Banks Index gained the most in six days after the European Union said 84 of the 91 banks tested have enough capital to handle a sovereign-debt crisis.

Investors believe that Canadian banks, which have survived the financial crisis without a failure or bailout, deserve a premium over European and US lenders due to their stability, Campbell said. Gains in European and US banks would lead to advances among Canadian banks as valuations catch up, he said.

Toronto-Dominion increased one percent to C$71.89. Canadian Imperial Bank of Commerce, the country's fifth-largest bank, climbed 1.7 percent to C$68.40. Bank of Montreal, the No. 4 bank by assets, rose 1.2 percent to C$61.78.

Canadian National Railway advanced after forecasting 2010 adjusted earnings of C$4.05 per share, compared with the average analyst estimate of C$3.93 a share, on a "stronger-than-expected economic recovery".