The S&P/TSX composite index ran ahead 172.72 points to 14,457.72 in a broad-based advance across all sectors.
The Canadian dollar edged 0.11 of a cent lower to 84.49 cents US.
U.S. indexes were also sharply higher amid hopes that U.S. interest rate hikes are still a ways off and optimism for strong American jobs data on Friday. The Dow Jones industrials surged 323.35 points to 17,907.87, the Nasdaq climbed 85.72 points to 4,736.19 and the S&P 500 index was ahead 36.24 points at 2,062.14.
The TSX had plunged almost 500 points in the first two days of this week, with energy stocks losing almost eight per cent in the first week of the year. But other sectors have also been under pressure as investors assessed possible spinoff effects of a collapse in oil prices and also took some profits by selling off some of the best performers of last year.
Oil prices have tumbled more than 50 per cent from June 2014 highs, partly because of demand concerns. But a global glut of supply has particularly depressed prices and the market has come around to the view that prices won't recover as fast as previously hoped.
Scott Vali, vice-president and portfolio manager at CIBC Asset Management and lead manager for its global resource funds, said it is important to note how market optimism about prices has deteriorated, pointing out that the January 2016 contract on the CME shows West Texas Intermediate futures are sitting around US$55 a barrel right now.
He says the decline in futures really took off late last month and was "incredibly important."
"It really eliminated the optimism around a quick recovery in the price and we need to see that management teams ... fully embrace the capital cuts that you’re going to start to see come through this reporting season," said Vali.
"Budgets are going to be cut, drilling is going to be curtailed and you will see that over the next couple of months where the drill count in the U.S. should drop somewhere between 40 and 50 per cent — and that will be the first signal that we are actually seeing the curtailment of new productive capacity in the market."
On Thursday, the TSX energy sector was up 1.6 per cent as oil prices drifted slightly higher, closing up 14 cents to US$48.79 a barrel and a second increase in as many days in the wake of data showing an unexpected decline in U.S. crude oil inventories last week.
The base metals sector rose 2.7 per cent with March copper up a penny at US$2.77 a pound.
The health-care segment was ahead 4.15 per cent as Valeant Pharmaceuticals International Inc. (TSX:VRX) estimates 2015 cash earnings per share of between US$10.10 and US$10.40, up from an estimated US$8.32 in 2014.
Cash flow from operations will be above US$3.1 billion, compared with about US$2.5 billion in 2014. Analysts had estimated 2015 revenue of about US$9.1 billion and US$10.06 per share in earnings and Valeant shares jumped $10.64 or 6.2 per cent to $182.28.
The gold sector was a major drag on the TSX, down almost two per cent while February gold faded for a second day, down $2.20 to US$1,208.50 an ounce.