Bay Street stocks rallied sharply again on Friday and pushed Toronto's main index to a seven-month closing high. Higher oil prices and encouraging employment data from both sides of the border boosted the markets.

The S&P/TSX Composite Index added 270.94 points or 2.71% to close at 10,237.99. This marks the highest close for the index since October 3.

Energy stocks rallied 5.6% as crude oil surged to a fresh six-month high. Suncor (SU.TO) and Encana (ECA.TO) both added 6.7% to lead the rally.

Canadian Oil Sands (COS.UN.TO) added 5.1% as Credit Suisse increased its price target for the stock to C$65 from C$61. The brokerage raised its 2009 EPS estimate to C$5.24 from C$4.64 and its 2010 estimate to C$5.22 from C$5.01.

Light sweet crude for June delivery climbed to $58.63, up $1.92 on the session. Prices climbed as high as $58.69, oil's highest intraday level since Nov. 11.

Financials closed up 3.6% as investors reacted to the U.S. government stress test results. Scotiabank (BNS.TO) gained 4.25%, CIBC (CM.TO) added 3.8% and Bank of Montreal (BMO.TO) climbed 3.5%.

Kingsway Financial Services (KFS.TO) dropped 8.7% after the company reported first quarter net loss of US$58.3 million or $1.06 per share, compared with a net loss of $34.4 million or $0.62 per share in the first quarter of 2008.

Mining stocks added 3.4% as copper rallied again on the Comex. Thompson Creek Metals (TCM.TO) surged 8%, FNX Mining (FNX.TO) added 7.5% and Teck Cominco (TCK.B.TO) added 3.1%.

Gold and copper producer Northgate Minerals (NGX.TO) gained 3.1% after the company posted net income for the first quarter of US$21.4 million or US$0.08 per share, compared to US$19.7 million or US$0.08 per share in the year-ago quarter.

In other corporate news, Eldorado Gold (ELD.TO) slipped 3% after the gold producer posted first quarter net income of US$13.1 million or US$0.04 per share, compared to US$20.7 million or US$0.06 per share in the prior year quarter.

Air Canada (AC-A.TO) plunged 25.4% after the airliner reported a first quarter net loss of C$400 million or C$4.00 per share, compared to a net loss of C$288 million or C$2.88 per share in the first quarter of 2008.

Canadian employment grew by 36,000 in April, the result of an increase in self-employment, according to data released Friday morning by Stats Canada.

Despite this increase, overall employment has fallen by 321,000 since the peak in October 2008. The unemployment rate was unchanged at 8.0% in April, remaining at its highest level in seven years, with the growth in employment coinciding with an increase in the labor force.

Across the border, the Labor Department report showed that non-farm payroll employment fell by 539,000 jobs in April following a revised decrease of 699,000 jobs in March. Economists had expected a decrease of about 600,000 jobs compared to the decrease of 663,000 originally reported for the previous month.

Traders also had their first chance to react to the official results of the U.S. government's stress tests of the nation's 19 largest financial institutions, which were released late Thursday afternoon. The showed that 10 of the 19 banks tested need to raise a total of $74.6 billion. The banks involved in the exercise account for two-thirds of the assets and more than half of the loans in the U.S. banking system.

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