Data showing that U.S. housing starts and permits rose in September signaled the economic recovery might be on track.

Upbeat quarterly earnings from major U.S. banks fueled the positive sentiment further.

Stock markets have been in a corrective phase over the past month, weighed on by worries over global economic growth, oil demand and the direction of U.S. Federal Reserve policy.

The Toronto stock market's energy group, which has been hit the hardest, rebounded for a second straight session, jumping 1.3 percent on Friday.

Investors appeared to be subscribing to a perception that some sectors fell too steeply in the selloff, making their valuations more appealing.

“What this bout of volatility has done is shaken us out of this complacency, and that's not really a bad thing," said Elvis Picardo, strategist at Global Securities in Vancouver.

“If the markets are fundamentally on solid ground, then big dips like this tend to be classic buying opportunities," Picardo said.

The Toronto Stock Exchange's S&P/TSX composite index <.GSPTSE> closed up 174.71 points, or 1.24 percent, at 14,227.68. Eight of the 10 main sectors on the index were higher.

Financials, the index's most heavily weighted sector, climbed 2 percent. Toronto-Dominion Bank (>> Toronto-Dominion Bank) advanced 2.7 percent to C$53.47, and Bank of Nova Scotia (>> The Bank of Nova Scotia) added 2.2 percent to C$67.31.

Shares of energy producers were helped by higher oil prices. Canadian Natural Resources Ltd (>> Canadian Natural Resources Limited) rose 2.9 percent to C$38.65, and Suncor Energy Inc (>> Suncor Energy Inc.) gained 1.6 percent to C$37.73.

(Editing by Peter Galloway and Grant McCool)

By John Tilak