TORONTO - Financial and mining stocks helped send the Toronto stock market sharply higher Thursday amid mixed U.S. economic data.

The S&P/TSX composite index jumped 220.17 points to 10,921.49 in a broad-based advance across most sectors.

The gain went a long ways to making up for a loss of almost 300 points in the first two days of this week on fresh worries about the pace of an economic recovery and the staying power of the six month old rally.

"It's volatile," said Paul Thornton, president of Investorbootcamp.com, adding he thinks the market is moving into a correction after a six-month rally that took the TSX up well over 40 per cent.

"The issue here is, we had a liquidity driven rally. All that money from the Fed and governments and so on, whether it's the U.S. or China or Canada, but now what's the next catalyst? And that's what the market is looking for here."

The gold sector was a big contributor, up almost five per cent as bullion inched closer to a close above US$1,000 an ounce for the first time since March 2008.

The December gold contract surged $19.20 to a six-month high of US$997.70 an ounce on worries about inflation spiking as a result of massive government stimulus to fight the recession.

"That's what is the key underpinning behind the rise in gold and my expectation of even higher gold prices," said John Ing, analyst at Maison Placements Canada.

"Another dose of it is not going to make things better and talk of another dose of stimulus just means that you are going to build a bigger head of steam under the gold price."

Barrick Gold (TSX:ABX) climbed $1.73 to $43.66 while Goldcorp Inc. (TSX:G) advanced $1.82 to $45.68.

The TSX Venture Exchange was up 30.62 points to 1,215.51, while the Canadian dollar finished up 0.13 of a cent to 90.64 cents US.

Investors took in U.S. jobless insurance claims data that missed expectations and deteriorating retail sales during the crucial back-to-school shopping season. But on the positive side, other data showed the U.S. service sector contracting but at a slower pace.

U.S. markets were higher after four losing sessions as the Dow Jones industrial average gained 63.94 points to 9,344.61.

The Nasdaq composite index was ahead 16.13 points to 1,983.2 while the S&P 500 index was up 8.49 points to 1,003.24.

Market optimism will be tested on Friday when the U.S. government releases its non-farm payrolls report for August. Economists expect the report to show the economy shed another 275,000 jobs last month.

Employment data for Canada will also be released on Friday. Economists expect the economy lost another 20,000 jobs during August.

The U.S. Labour Department reported Thursday the number of laid-off workers applying for benefits dipped to 570,000 last week, a weaker performance than the drop to 560,000 that economists expected.

The number of people receiving jobless benefits totalled 6.23 million for the week ending Aug. 22, up 92,000 from the previous week and above the 6.13 million that economists expected.

The Institute for Supply Management says its service index, which covers hospitals, retailers, financial services companies and more, came in at 48.4 in August, the slowest pace of decline in 11 months, from 46.4 in July.

Economists polled by Thomson Reuters expected a reading of 48.

Investors also took in reports from retailers showing sales declines for August as shoppers continue to hold off on back-to-school purchases and continue to focus on necessities.

On the TSX, gains were also led by a jump of two per cent in the financials sector. Royal Bank (TSX:RY) climbed $1.05 to $55.79.

Shares in Laurentian Bank (TSX:LB) moved up $1.71 to $37.94 after it reported its third-quarter profit dipped to $28.7 million, down from $30.9 million a year ago when the bank benefited from the sale of a stake in the Montreal Exchange. However, revenue rose three per cent and earnings beat expectations.

The energy sector was up 1.13 per cent as the October crude contract on the New York Mercantile Exchange headed nine cents lower to US$67.96 a barrel. EnCana Corp. (TSX:ECA) gained 62 cents to $55.67.

Shares in Nexen Inc. (TSX:NXY) were ahead 93 cents to C$21.88 on the TSX after the Canadian oil and gas company said it has made a "substantial" discovery of additional resources in the U.K. North Sea in the Golden Eagle area.

The base metals sector improved 3.8 per cent as December copper was up two cents at US$2.846 a pound. Teck Resources (TSX:TCK.B) advanced 55 cents to $26.15 .

In other corporate news, Reitmans (Canada) Ltd. (TSX:RET.A) says its profit shrank 25 per cent to $26.4 million in the summer quarter as sales revenue slipped and overhead costs rose, primarily because of the reduced buying power of the Canadian dollar. Its shares fell 24 cents to $14.60.