TORONTO - Bank of Montreal (TSX:BMO) helped spark a rally in the financial sector and send the Toronto stock market sharply higher with quarterly profits that beat expectations.

The S&P/TSX composite index moved 130.56 points higher to 10,920.53 after the bank reported quarterly profit of of $557 million or 97 cents a share for the quarter ended July 31. That was up from $521 million a year ago and ahead of the average analyst estimate of 95 cents a share.

The results were helped by lower provisions for bad loans which fell to $417 million from $484 million a year ago.

Paul Vaillancourt, director of asset allocation, Franklin Templeton Managed Solutions, said the Canadian banks are better off than the global financial sector.

"(Canadian banks) just weren't exposed and leveraged to bad loans and falling real estate and it's showing up in the earnings through lower loan loss provisions. That's the positive and we would expect similar news from most Canadian institutions," Vaillancourt said.

Bank of Montreal shares climbed $3.29 or 6.7 per cent to $52.30 and the financial sector was ahead 3.6 per cent with all of the major Canadian banks reporting quarterly earnings this week. Royal Bank (TSX:RY) gained $2.10 to $52.80 while CIBC (TSX:CM) rose $2.90 to $68.65.

The gains in Toronto would have been stronger had it not been for a turnaround in the energy sector, which closed down 0.74 per cent as the October crude contract on the New York Mercantile Exchange declined $2.32 to US$72.05 a barrel on demand concerns. Suncor Inc. (TSX:SU) moved 48 cents lower to $34.79.

The Canadian dollar was down 0.75 of a cent to 92.1 cents U.S. after the Bank of Canada warned it is prepared to intervene to ensure the Canadian dollar doesn't continue its recent rise.

Bank deputy governor Timothy Lane said the economy is in the midst of staging a comeback, but that a persistently strong loonie could restrain the recovery.

The TSX Venture Exchange moved 2.69 points lower to 1,183.67.

The TSX and New York markets also got a lift from a better than expected reading on consumer sentiment while U.S. President Barack Obama announced that U.S. Federal Reserve chairman Ben Bernanke will be reappointed for a second term.

In New York, the Dow Jones industrial average moved up 30.01 points to 9,539.29.

The Nasdaq composite index added 6.25 points to 2,024.23 while the S&P 500 climbed 2.43 points to 1,028.

Traders also took in data showing that U.S. home prices posted their first quarterly increase in three years, signalling the housing market has turned a corner.

The Standard & Poor's/Case-Shiller's U.S. National Home Price Index rose nearly three per cent from the first quarter, though was still down almost 15 per cent from the second quarter last year.

The New York-based Conference Board says its Consumer Confidence index rose to 54.1 from an upwardly revised 47.4 in July. Economists surveyed by Thomson Reuters had expected a slight increase to 47.5. Still, the index is far below 90, the minimum level associated with a healthy economy.

A recovery among consumers is considered vital to any potential economic rebound because their spending accounts for more than two-thirds of all economic activity.

Other commodity prices were mixed as the December bullion contract on the Nymex gained $2.30 to US$946 an ounce while September copper slipped 5.9 cents to US$2.856 a pound.

The gold sector was ahead 2.22 per cent, with Kinross Gold Corp. (TSX:K) ahead 58 cents to $21.25.

The base metals sector rose 2.18 per cent as Ivanhoe Mines (TSX:IVM) surged $2.30 or 24.26 per cent to $11.78 after the Mongolian parliament amended legislation that should facilitate development of the company's proposed Oyu Tolgoi copper-gold project. A major change involves a repeal of a windfall profits tax.

Shares in West Timmins Mining (TSX:WTM) fell despite a positive drilling report on the Thunder Creek venture in Timmins, Ont., operated as a joint venture with Lake Shore Gold (TSX:LSG). West Timmins stock was down 18 cents or 7.25 per cent at $2.30.

Shares of Halifax-based mineral explorer Linear Metals Corp. (TSX:LRM) soared 17 cents or 73.91 per cent to 40 cents after the company said it's restarting exploration on its 100 per cent owned Seymour Lake lithium-tantalum-beryllium property north of Lake Nipigon in northwestern Ontario.

In other corporate news, shares in convenience store operator Alimentation Couche-Tard (TSX:ATD.B) climbed $1.38 or 7.85 per cent to $18.97 as the company reported Tuesday that its profits more than doubled to US$91.1 million during the first quarter despite a 15 per cent drop in sales, mainly due to lower fuel prices.

TransAlta Corp. (TSX:TA) has not yet decided on whether to extend or sweeten its hostile $654 million offer for green energy producer Canadian Hydro Developers Inc. (TSX:KHD), which on Tuesday persuaded an Alberta regulator to keep its shareholder rights plan in place. The offer is set to expire at 8 p.m. EDT Thursday. TransAlta shares were off 31 cents to $21.88 while Canadian Hydro Developers were down 11 cents to $5.07.