CANADA STOCKS-TSX extends 2-yr high with broad gains; up 1.9 pct on week

Reuters

* Bombardier gains as Chinese firm may double jet order

* Real estate stocks gain in low-rate environment

By Alastair Sharp

TORONTO, Oct 18 (Reuters) - Canada's main stock index capped

a stellar week with further gains on Friday, extending a

two-year peak as industrial and resource stocks gained on data

showing the Chinese economy, the world's second-biggest, grew at

its fastest pace this year.

Adding to the rosy view for stocks, investors are betting

that the U.S. Federal Reserve will delay trimming its stimulus

measures due to the economic damage inflicted by the partial

U.S. government shutdown that ended on Thursday.

"A lot of Canadian money managers have been sitting on their

hands watching what's been happening south of the border and,

that having been sorted out, at least in the short term, they

are back in the market," said David Cockfield, managing director

and portfolio manager at Northland Wealth Management.

"I think this trade deal is encouraging people as well," he

added, referring to the signing of a multibillion-dollar trade

pact between Canada and the European Union.

The deal will make Canada the only Group of 8 country to

have preferential access to the world's two largest markets, the

EU and the United States, home to about 800 million people.

The Toronto Stock Exchange's S&P/TSX composite index

closed up 99.73 points, or 0.77 percent, at 13,136.09,

its highest level since July 2011. It gained 1.9 percent on the

week, its best weekly performance since July.

Air Canada rose 4.6 percent to $5.19. The airline,

which reached a deal to expand its main hub in Toronto, has

risen sharply in recent months amid a major expansion push and

solid traffic growth.

Investors pushed aircraft maker Bombardier up 1.8

percent to C$5.08 after it said a Chinese company may double its

total order of new jetliners.

"No question the worst is over in China. Things have

stabilized and are now on the upswing and that is very important

for worldwide growth," said Barry Schwartz, a portfolio manager

at Baskin Financial Services.

Third-quarter growth in China, the world's second-biggest

economy, was 7.8 percent from a year ago, its quickest pace for

the year, thanks largely to investment.

All of Canada's ten main sectors advanced except materials,

which was weighed down by retreating gold miners. Some of the

biggest gains came from the heavyweight financial and energy

sectors.

"If you are sitting on a bunch of cash, you probably slide

back into the utilities, the big financials," Northland's

Cockfield said.

The financial subgroup rose 0.7 percent, powered by Royal

Bank of Canada. The bank rose 1.1 percent to C$69.53,

pushing its market capitalization above C$100 billion, a first

for a Canadian lender.

RBC, which along with other Canadian banks has been boosted

lately by signs that Canada's housing sector is stabilizing, is

currently Canada's largest publicly traded company.

Royal, Toronto-Dominion Bank, Bank of Nova Scotia

and National Bank of Canada all hit record

highs.

Baskin's Schwartz said Canada's banks and real estate

investment trusts (REITs) have room to rally further.

"Interest rates are now back to where they were before the

taper talk, yet the REITs aren't," he said.

Riocan Real Estate Investment Trust gained 1.6

percent to C$25.75 and Dundee Real Estate Investment Trust

added 1.6 percent to C$29.52.

Schwartz said that after the distraction of the U.S. debt

crisis, investors should be focused on interest rates, inflation

and stock valuations, and that each factor was looking prime for

improvement in Canada.

"Stocks are still the shiniest gold coin in a tarnished box

of treasure," he said.

The heaviest fall belonged to Athabasca Oil Corp,

which plunged 12 percent to C$6.13 after a court ruled that an

aboriginal group could appeal the approval of an oil sands

project.

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