CANADA STOCKS-Resource shares boost TSX; gains capped by interest rate outlook

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TSX ends up 0.2% at 20,260.13

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Uni-Select shares surge 16.6% after takeover deal

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Materials sector advances 1.3%

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Energy gains 0.5%

(Adds investor quotes and details throughout; updates prices)

By Fergal Smith

Feb 27 (Reuters) - Canada's TSX stock index advanced on Monday as the energy and materials sectors gained ground and a takeover deal boosted the shares of Uni-Select Inc, but gains for the index were limited as investors worried about additional interest rate hikes by the Federal Reserve.

The Toronto Stock Exchange's S&P/TSX composite index ended up 40.94 points, or 0.2%, at 20,260.13. It was the second straight day of modest gains for the index after posting on Thursday its lowest closing level in six weeks.

"The overhang of possibly more interest rate rises is going to cloud market sentiment until either something happens or doesn't," said Michael Sprung, president at Sprung Investment Management. "If they (the Fed) raise again it would put further pressure down on the market. If they take a pause here that might look like a false signal to the market."

U.S. stocks eked out a slight gain as investors engaged in some bargain hunting after last week's losses.

"Realistically this year we are going to be in for a volatile but hopefully just very much sideways market as opposed to down. We could end up with even more pressure if signs of a real recession started to settle in," Sprung said.

Canadian gross domestic product data, due on Tuesday, is expected to show that the economy grew at an annualized rate of 1.5% in the fourth quarter, slowing from 2.9% in the prior quarter.

The Toronto market's energy sector rose 0.5% and the materials group, which includes precious and base metals miners and fertilizer companies, was up 1.3% as gold and copper prices rose.

Uni-Select shares surged 16.6% after LKQ Corp said it would buy the auto parts distributor for about C$2.8 billion ($2.1 billion).

Toronto-Dominion Bank agreed to pay $1.205 billion to resolve litigation by former Allen Stanford investors who accused it and two other banks of contributing to the imprisoned financier's massive Ponzi scheme. Its shares ended 0.6% lower. ($1 = 1.3565 Canadian dollars) (Reporting by Fergal Smith; Additional reporting by Johann M Cherian in Bengaluru; Editing by Shailesh Kuber and Stephen Coates)