TORONTO - The Toronto stock market closed sharply higher Tuesday following a steep loss as energy stocks revived and financials advanced after Bank of Montreal (TSX:BMO) bought a piece of troubled U.S. insurer American International Group.

New York markets were weak with investors uneasy about corporate profits after aluminum giant Alcoa Inc. widely missed expectations.

"Alcoa is a harbinger of things to come," said Jeff Buetow, senior portfolio manager at Portfolio Management Consultants in New York. "It was a horrible report."

Toronto's S&P/TSX composite index ran ahead 168.22 points to 8,961.55, while the Dow Jones industrials moved down 25.41 points to 8,448.56.

Alcoa reported after the markets closed Monday that it lost US$1.19 billion or 28 cents a share during the fourth quarter as demand for aluminum plunged, much higher than the 10 cents a share loss that analysts had expected. Shares of the Dow component dipped 51 cents or five per cent to US$9.55.

Bank of Montreal shares were 64 cents or almost two per cent higher to $33.45 after it announced that it is buying AIG Life Insurance Company of Canada in an all-cash deal worth $375 million.

The TSX Venture Exchange was off 9.45 points to 868.9.

Losses piled up for the Canadian dollar as a stronger greenback helped push the loonie down 0.63 cent to 81.65 cents US on top of a loss of cents Monday.

On the economic front, Statistics Canada reported that Canada's trade balance with the world fell to $1.3 billion in November from a revised $2.3 billion in October as both exports and imports declined.

Over two-thirds of the drop in exports and almost all the decrease in imports were due to energy products, as crude petroleum prices continued to fall.

The Nasdaq composite index was up 7.67 points to 1,546.46 while the S&P 500 rose 1.53 points to 871.79 after the U.S. trade deficit plunged to US$40.4 billion in November, the lowest level in five years, as a deepening recession slashed demand for oil by a record amount. Imports from China also fell by the largest amount on record.

Investors also took in comments from U.S. Federal Reserve chairman Ben Bernanke who said the stimulus package being crafted by President-elect Barack Obama and Congress could provide a "significant boost" to the sinking economy. But he warned that such a recovery won't last unless other steps are taken to stabilize the shaky financial system.

Bernanke said "more capital injections and guarantees may become necessary" to stabilize financial markets and spur more lending.

The TSX energy sector was up 2.7 per cent, down sharply from early levels after the February crude contract on the New York Mercantile Exchange inched ahead 19 cents to US$37.78.

Crude had risen to almost US$40 earlier in the session after Saudi Arabia, the largest producer in the Organization of the Petroleum Exporting Countries, said that it would cut oil output by about 300,000 barrels per day below its recently agreed OPEC quota.

EnCana Corp. (TSX:ECA) rose $1.22 to $56.08 while Suncor Energy Inc. (TSX:SU) added 92 cents to $27.48.

Talisman Energy Inc. (TSX:TLM) shares rose 39 cents to $12.34 after it said its capital spending for 2009 will come in at $4 billion, roughly $1 billion less than it spent in 2008.

The gold sector rose four per cent as the February bullion contract in New York slipped 30 cents to US$820.70. Goldcorp Inc. (TSX:G) advanced $1.09 to $31.49 while Barrick Gold Corp. (TSX:ABX) climbed $1.99 to $39.98.

Shares of Yamana Gold Inc. (TSX:YRI) rose 19 cents to $7.95 after the Toronto gold miner said it expects to produce 1.3 million to 1.4 million gold equivalent ounces in 2009.

It also cut its dividend to one cent a share per quarter from one cent a month to conserve cash and help finance its expansion projects.

The telecom sector was also higher, up 1.5 per cent with Telus Corp. (TSX:T) ahead $1.14 to $35.86.

Also supporting the TSX was Potash Corp. (TSX:POT), up $3.95 to $93.45.

Telecom manufacturer Wi-Lan Inc. (TSX:WIN) is reporting fiscal 2008 loss of $9.2 million. The company's shares were down nine cents to $1.60 after it said its fourth quarter earnings slipped to $277,000, from year-earlier profits of $1.2 million

CAE Inc. (TSX:CAE) shares climbed 33 cents to $7.95 after it said it has won a $60 million contract to build five flight simulators.

The company says the contracts are with Continental Airlines, Air China and Shandong Airlines.