By Fergal Smith
TORONTO (Reuters) - Canada's main stock index rose on Tuesday as a seven-year high for oil prices bolstered energy shares and bank stocks benefited from a steeper yield curve, with the index recovering from a two-and-half-month low the day before.
The Toronto Stock Exchange's S&P/TSX composite index ended up 131.18 points, or 0.7%, at 20,183.43. On Monday, it posted its lowest closing level since July 20.
"Energy stocks are helping to drive the index today," said Lorne Steinberg, president, Lorne Steinberg Wealth Management Inc.
The energy group climbed 2.8% as oil rose to its highest level since 2014, supported by the OPEC+ decision on Monday to stick to planned output rises. U.S. crude prices settled 1.7% higher at $78.93 a barrel.
Consumer discretionary stocks added 1%, while financials, which account for about 30% of the Toronto market's capitalization, were up 0.9%.
"We remain very bullish on banks," Steinberg said. "They still seem to be a pretty cheap, attractive sector in the market and a huge beneficiary of a steeper yield curve."
A steeper yield curve, or a wider gap between long-term and short-term rates, helps improve the profit margins of banks.
The gap between the Canadian 2- and 10-year yields widened by 4.1 basis points to 100 basis points in favor of the longer-term bond, the widest gap since June.
Worries around higher inflation and a slowdown in economic growth have rattled investor sentiment in recent weeks. Still, the Toronto market has gained nearly 16% since the start of the year.
Gains for the TSX on Tuesday came as data showed Canada's trade surplus with the world widening in August to C$1.9 billion.
Canada's employment report for September is due on Friday, which could offer clues on the Bank of Canada policy outlook.
(Reporting by Fergal Smith; Additional reporting by Amal S in Bengaluru; Editing by Lisa Shumaker)