The S&P/TSX composite index rose 27.54 points to 12,258.6 led by gains in the mining and information technology sector, while the TSX Venture Exchange was 2.9 points higher at 1,538.93.
The Canadian dollar was higher, up 0.45 of a cent to 98.23 cents US, a day before the Bank of Canada makes its next announcement on interest rates. The central bank is widely expected to keep its key rate at one per cent.
New York markets were closed for the Martin Luther King holiday.
Analysts said the S&P downgrades, officially announced Friday after markets closed, had been widely expected, especially in the bond markets.
There was very little shock at S&P's announcement to strip France of its treasured triple-A rating and to cut its view on a raft of other euro countries, including Italy. One bright spot was that Germany, Europe's biggest economy, retained its triple-A rating and had its outlook upgraded to stable from negative.
Also, on Monday, rival ratings agency Moody's said it was maintaining France's top-tier AAA credit rating for now, with the outlook stable. S&P rates France's outlook as negative.
There was also relief as France sold €8.6 billion in short-term debt on Monday. Yields fell in a a sign investors still see the country as a good bet.
But analysts said the S&P downgrades could create a problem with expanding the eurozone's bailout fund, the European Financial Stability Facility, since France is the fund's second-largest backer.
"And they've always said how important it is for the fund to retain a AAA rating because obviously, if it's not, then it's going to cost a lot more which, in turn, would put the math of the whole bailout fund in peril," observed Gavin Graham, president of Graham Investment Strategy.
"It probably doesn't have a major effect on France's own situation in the short term. But you're going to see more concerns about whether it will lead to further downgrades and what's going to happen to the bailout fund.
On Monday, S&P downgraded the creditworthiness of the eurozone's bailout fund by one notch to AA-plus.
Another headache for markets at the moment is whether Greece can clinch a deal with its creditors. Last October, Greece's partners in the eurozone sanctioned a deal whereby creditors agreed to reduce the value of their Greek debt holdings so that the country's burden is reduced.
The deal with private investors, known as the Private Sector Involvement, or PSI, aims to reduce Greece's debt by €100 billion by swapping private creditors' bonds for new ones with a lower value. It is a key part of a €130-billion international bailout, the second one for Greece.
Talks broke off Friday but discussions on the PSI are expected to resume this week.
The tech sector was the biggest advancer, up 1.6 per cent as Wi-Lan Inc. (TSX:WIN) gained 17 cents to $5.52 while Research In Motion Ltd. (TSX:RIM) advanced 30 cents to $16.86,
Commodity prices advanced with the February contract on the New York Mercantile Exchange ahead 99 cents to US$99.69 a barrel in electronic trading late Monday afternoon. The energy sector was up 0.11 per cent with EnCana Corp. (TSX:ECA) down 51 cents to $17.38 and Suncor Inc. (TSX:SU) climbed 31 cents to $32.94.
The base metals sector rose 0.53 per cent as March copper added four cents to US$3.68 a pound. HudBay Minerals (TSX:HBM) was up 21 cents to $10.72 and Teck Resources (TSX:TCK.B) gained 30 cents to $39.65 .
Uranium One Inc. (TSX:UUU) shares ran ahead 36 cents to $2.73 after it said it would pay US$150 million to acquire a 13.9 per cent stake in Mantra Resources and extend its purchase option for the company by a year to June 2013. It also said Monday it produced 10.7 million pounds of uranium and sold 9.9 million pounds in 2011.
The gold sector was flat while February bullion gained $12.70 to US$1,643.50 an ounce. Barrick Gold Corp. (TSX:ABX) rose 34 cents to C$49.78 and Kinross Gold Corp. (TSX:K) was up 29 cents at $13.20.
The industrials sector led TSX decliners, down one per cent with Bombardier Inc. (TSX:BBD.B) down five cents to $4.36 while Canadian National Railways (TSX:CNR) gave back $1.97 to $76.28.
In other corporate news, Pembina Pipeline Corp. (TSX:PPL) has agreed to purchase all issued and outstanding shares of Provident Energy Ltd. (TSX:PVE) in a transaction valued at $3.2 billion in shares. The combined company will have a market capitalization of $7.9 billion, making it one of Canada's largest publicly traded energy infrastructure companies. Pembina shares lost $1.20 to $26.70 while Provident shares jumped $1.69 or 17.77 per cent to $11.20.
WestJet (TSX:WJA) shares were off 14 cents to $11.66 as it said it was considering launching a new short-haul regional airline in a move that would extend service to smaller communities and increase traffic to its current network.
Shares in Carnival Cruise Lines took a hit on the London Stock Exchange Monday. Its stock tumbled 16.5 per cent after the cruise ship Costa Concordia hit a reef and capsized Friday night off the Italian coast with 4,200 people on board. The ship is owned by Costa Crociere, which in turn is owned by Carnival, which said it expects a hit of up to US$95 million to 2012 earnings.