TORONTO - The Toronto stock market closed higher Friday as investors came around to the view that the U.S. Federal Reserve's decision to begin dismantling emergency lending measures for banks is actually a positive.

And a better-than-expected reading of American inflation further persuaded investors that the Fed isn't about to raise rates across the board, threatening the economic recovery.

"The Fed certainly isn't exiting the easy money policy door yet," said Burt White, chief investment officer at LPL Financial in New York.

"(But) They have their coats and boots on."

The S&P/TSX composite index moved up 14.45 points to 11,709.29 -- finishing higher for eight sessions in a row -- after the U.S. central bank said Thursday that it would bump up its "discount" rate by one-quarter point to 0.75 per cent.

The discount rate is the lending rate charged to banks. The Fed said the step should not be seen as a signal that it will soon boost interest rates for consumers and businesses, but investors' initial reaction was one of worry that the days of ultra-low interest rates are coming to an end sooner than thought.

"I suspect that the move was a bit of surprise in that people might have expected they would do it at their next (interest rate) meeting and we didn't see it in the latest Fed minutes," said Colin Cieszynski, market analyst at CMC Capital Markets.

"So there was a surprise element in it that the Fed moved faster than people expected."

The Canadian dollar shed early steep losses to move up 0.09 of a cent to 96.11 cents US.

Market sentiment turned positive as investors saw the Fed's move as a vote of confidence that the financial system was recovering.

"It's not clear why equities would weaken on the discount rate move, since it signals that the Fed believes the banking system and credit markets are no longer dependent on emergency liquidity support," said BMO Capital Markets senior economist Sal Guatieri.

Growing optimism about the strength of the U.S. economy and rising commodity prices helped send North American stock indexes sharply higher this week. The TSX gained 2.08 per cent this week, and 5.35 per cent over the past eight sessions.

The utilities sector was the biggest percentage gainer, up 1.52 per cent with Fortis Inc. (TSX:FTS) ahead 78 cents to $27.90.

The energy sector rose 0.33 per cent as the March crude contract on the New York Mercantile Exchange gained 75 cents to US$79.81 a barrel. Suncor Energy (TSX:SU) climbed 25 cents to C$31.93.

The gold sector led decliners, down 1.52 per cent even as the April bullion contract on the Nymex gained $3.40 to US$1,122.10 an ounce. Goldcorp Inc. (TSX:G) faded 54 cents to C$40.32 while Kinross Gold Corp. (TSX:K) fell 45 cents to C$19.23.

March copper was up seven cents at US$3.36 a pound and the base metals sector moved 0.87 per cent higher. Equinox Minerals (TSX:EQN) gained 12 cents to C$3.45 while HudBay Minerals (TSX:HBM) climbed 25 cents to C$13.78. The TSX Venture Exchange was up 8.22 points to 1,531.9.

Investor reaction to the Fed move on the discount rate improved after the U.S. Labour Department said the consumer price index rose by a smaller-than-expected 0.2 per cent in January. Excluding food and energy, prices actually slipped 0.1 per cent, its first monthly drop in 27 years.

The move came as a relief to investors because it makes it less likely the Fed will need to raise its benchmark fed funds rate in the near future to combat inflation.

The Dow Jones industrial average edged up 9.45 points to 10,402.35. The Nasdaq composite index was 2.16 points higher at 2,243.87, while the S&P 500 index moved ahead 2.42 points to 1,109.17.

In corporate news, the Canpotex marketing agency that represents three of Saskatchewan's major potash producers announced it had negotiated a contract to sell about US$222 million worth of the fertilizer ingredient to a consortium of buyers in India.

Canpotex is the international marketing organization owned by Potash Corporation of Saskatchewan (TSX:POT), Calgary-based Agrium Inc. (TSX:AGU) and a Canadian subsidiary of Mosaic Co. (NYSE:MOS). Potash shares gained eight cents to C$119.99 and Agrium declined 34 cents to C$68.48.

Brookfield Asset Management Inc. (TSX:BAM.A) shares gained 25 cents to $24.19 after it reported it had a smaller profit both in the fourth quarter and the year ended Dec. 31. Net income fell to US$102 million or 15 cents per diluted share in the fourth quarter, down from US$171 million or 27 cents per share a year earlier. Annual income fell to US$454 million or 71 cents per share in 2009, down from US$649 million or $1.02 per share in 2008.