TORONTO (Reuters) -
The Toronto Stock Exchange's main index jumped more than 4 percent on Tuesday, recouping more than half the previous day's heavy losses, as energy issues got a boost from crude oil's recovery, while hopes for a revived Wall Street rescue plan calmed investor nerves.

Following a near 7 percent tumble on Monday after U.S. lawmakers rejected a proposed $700 billion bailout for the financial sector, the recovery spanned all 10 TSX subgroups, led by a 5.8 percent surge in energy stocks and a 5.4 percent rise by financial issues.

"Optimism springs eternal I guess, and (the U.S. congressional vote) was pretty close. People probably feel that the next time around it will pass simply because the reasons to vote against it were pretty weak," said John Kinsey, a portfolio manager at Caldwell Securities.

The S&P/TSX composite index rose 467.83 points, or 4.15 percent, to close at 11,752.90.

Reports that U.S. lawmakers were working to revive the bailout plan drove crude up more than $4 a barrel to above the key $100 level, boosting companies such as Canadian Natural Resources, which rose 11.8 percent to C$73, and Nexen Inc, which gained 10.3 percent to C$24.70.

Among financials, Bank of Montreal led the way, rising 9.4 percent to C$45.95, while Canadian Imperial Bank of Commerce jumped 7.4 percent to C$61.08.

Plane and train builder Bombardier jumped 12.9 percent to C$5.78, leading industrials up 4.5 percent.

Analysts said some of the bounce could be attributed to bargain hunters rushing in for quality stocks, and also to buying associated with fund managers rebalancing their portfolios ahead of the end of the quarter.

"Normally, when you have that big a selloff, you get some kind of snapback," said Peter Chandler, senior vice-president at Canaccord Capital.

"We've got extreme volatility right now, and until we come out of the other end of this, that's not going to change."

For the month of September, the TSX composite index fell 15 percent.

Market volume was a brisk 552.2 million shares, valued at C$9.5 billion. Advancing issues outnumbered decliners 1,022 to 586.

The blue-chip S&P/TSX 60 index rose 30.89 points, or 4.57 percent, to 707.34.

U.S. stocks also reversed course sharply, as the Dow Jones industrial average leaped 485.21 points, or 4.68 percent, to 10,850.66, while the tech-heavy Nasdaq composite gained 98.60 points , or 4.97 percent, to 2,082.33.

($1=$1.06 Canadian)

(Reporting by Cameron French; editing by Rob Wilson)

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NEW YORK/WASHINGTON (Reuters) -
U.S. lawmakers and President George W. Bush eased pressure on financial markets on Tuesday by starting work to revive a $700 billion bailout plan to stem a credit crisis that has spread beyond Wall Street to claim more European banks.

U.S. stocks roared back -- a day after their worst sell-off in 21 years -- and the dollar rallied as investors bet Washington would manage to salvage a package to stabilize the financial sector after Monday's shock defeat on Capitol Hill.

The Standard & Poor's 500 index shot up by more than 5 percent, the biggest one-day gain for that measure of the broad market in six years.

The relief rally came as the White House, Treasury Secretary Henry Paulson and the two candidates hoping to succeed Bush as president, Republican John McCain and Democrat Barack Obama, reaffirmed their support for a bailout plan. Congressional leaders started talks to relaunch the package this week.

"There's an overarching belief that at some point this week, whether it's Wednesday or Thursday, we'll get something passed by the House," said Arthur Hogan, chief market analyst at Jefferies & Co in Boston.

Global money markets remained frozen, and London interbank offered rates shot to record levels, indicating banks were not lending to each other. The rate for overnight dollar loans rose to nearly 6.9 percent from just over 2.5 percent on Monday.

The U.S. bailout plan, which would allow the Treasury Department to buy toxic mortgage-related assets from banks, had been the main hope for government action to unlock credit markets and head off a deeper economic downturn in the United States and abroad.

"I assure our citizens and citizens around the world that this is not the end of the legislative process," Bush said.

U.S. regulators were also readying a revision of the "fair value" accounting rule that has led to massive charges on mortgage-related assets, and has been blamed for deepening the credit crisis. The upshot: U.S. banks do not need to mark hard-to-price assets down to firesale prices.

In a separate move intended to shore up consumer and business confidence in banks, the Federal Deposit Insurance Corp (FDIC) is looking to increase the amount of individual deposits it insures.

"All eyes are still on the authorities and their attempts to rescue the financial system," said Vassili Serebriakov, currency strategist at Wells Fargo Bank. "While the Treasury's bailout plan was rejected by lawmakers yesterday, most are still waiting for either a new vote or a 'plan B' type of move."

GLOBAL AFTERSHOCKS

From Dublin to Moscow, the financial crisis is an ominous presence.

Ireland unveiled a blanket guarantee for savings held by its banks, and for the second time in a month Russia briefly shut down its stock markets.

France, Belgium and Luxembourg poured 6.4 billion euros into Franco-Belgian bank Dexia to avoid defaults on its loans, and France promised new bank measures to help depositors.

Shares of British bank HBOS Plc fell on concerns that Lloyds TSB Group Plc could renegotiate a deal to buy HBOS.

Dutch-Belgian banking and insurance group Fortis was partially nationalized and regional U.S. bank Wachovia sold its banking operations to Citigroup.

The dollar rose against the yen and oil rebounded. European stocks bounced back from the three-year lows hit Monday.

Shares of the U.S. banks seen emerging with a strengthened hand after the crisis, including Citigroup Inc, JPMorgan Chase & Co and Bank of America Corp, shot higher on Tuesday.

The gains for stocks came against the backdrop of the end of the third quarter, historically a time when corporate profit warnings and fund redemptions spike.

Hedge fund managers are bracing for a wave of investors to cash out as money rushes to safe haven assets.

"I would expect company managements would use this camouflage of the financial crisis as the rationale for marking down expectations," said Ned Riley, chief executive of Riley Asset Management.

WASHINGTON REMAINS EPICENTER

Top Senate leaders vowed swift action to pass a rescue plan.

Congress was not in session on Tuesday because of the Jewish holiday of Rosh Hashanah. The Senate could take up bailout legislation again as early as Wednesday. The House is due to return on Thursday.

A number of the Republicans and Democrats who helped defeat the bailout are up for reelection in November in tight races and had faced widespread voter anger over the bailout.

Many Americans saw the $700 billion fund as an unfair burden on taxpayers and a reward for powerful bankers they blame for creating the housing market bubble.

That put the focus on potential changes to the rescue package that might win over votes from representatives in areas hardest hit by the housing crash such as Florida, California and the Southwest.

"Wall Street as we knew it is already toast -- beyond bailing out -- but the public still thinks of this legislation as bailing out Wall Street," said Donald Straszheim, vice chairman of Roth Capital Partners in Los Angeles. "Until this perception changes, do-overs to quickly pass similar legislation won't fly."

One of the first signs of how quickly the economic pain is spreading from Wall Street to Main Street will come with Wednesday's release of U.S. auto sales for September, when the financial crisis began to topple banks and freeze credit.

Major U.S. auto dealers report difficulty finding financing for car shoppers and tougher terms for funding their own inventories. All major automakers are expected to report sales declines.

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NEW YORK (Reuters) -
Oil rose $6 per barrel on Tuesday to over $102 as expectations U.S. lawmakers would pass a financial stability plan boosted global markets.

Oil and other markets had tumbled on Monday after the U.S. House of Representatives rejected the $700 billion bailout plan. But U.S. President George W. Bush and congressional leaders pledged to continue negotiations.

U.S. crude traded up $6 to $102.37 in post-settlement trade, after earlier settling up $4.27 at $100.64 a barrel. On Monday, oil dropped $10.52 in the second-biggest fall since April 23, 2003. London Brent crude traded up $4.19 to settle at $98.17 a barrel.

"I do think that Congress will pass the bailout package, possibly before this weekend," said Mark Waggoner, president of Excel Futures.

The U.S. dollar surged and global stocks clawed back from Wall Street's worst day in 20 years as investors bet Washington eventually would pass the plan to stimulate credit markets and stave off a possible recession.

Oil has dropped from a record high $147.27 reached in July on signs that high energy prices and the financial crisis have cut into crude demand in the United States and other industrialized nations.

Additional pressure has come as investors -- who had rushed into commodities earlier this year as a hedge against inflation and the weak dollar -- sold crude for safer havens.

Signs the financial crisis was spreading to Europe could erode demand further, analysts warned.

"Slower international economic growth is bound to dent oil demand," said David Moore, a commodities analyst at the Commonwealth Bank of Australia.

Belgian-French financial services group Dexia (DEXI.BR) is getting a 6.4 billion euro ($9.18 billion) capital boost from public shareholders.

Ireland offered to guarantee all bank deposits for two years to improve banks' access to funds on international markets, helping sentiment in the equity market.

Analysts said the spread of credit problems to Europe was stoking fears the financial turmoil, which started with risky lending to the U.S. property market, had gone global rapidly.

OPEC seaborne oil exports, excluding Angola and Ecuador, rose 50,000 barrels per day (bpd) in the four weeks to September 14 but fell sharply from Gulf producers, Lloyd's Marine Intelligence Unit said.

A Reuters poll of analysts ahead of weekly U.S. government inventory data due out on Wednesday predicted crude stockpiles in the world's top consumer rose 2.4 million barrels in the week to September 26. Analysts forecast distillates fell by 1.2 million barrels while gasoline inventories were seen down 1.6 million barrels.

(Reporting by Matthew Robinson and Rebekah Kebede in New York, Alex Lawler and Jane Merriman in London, additional reporting by Maryelle Demongeot in Singapore and Fayen Wong in Perth; Editing by Marguerita Choy)

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