The S&P/TSX composite index jumped 226.99 points to 14,900.47.
The Canadian dollar was ahead 0.84 of a cent at 79.31 cents US.
New York indexes also closed sharply higher, recovering from initial disappointment with a weaker than expected reading on manufacturing.
The Dow Jones industrials ran ahead 196.22 points to 17,361.17, the Nasdaq was 41.45 points higher at 4,676.69 and the S&P 500 index gained 25.86 points to 2,020.85.
The TSX energy sector climbed 4.5 per cent as oil prices advanced for a second day with the March crude contract in New York up $1.33 to US$49.57 a barrel. Prices had jumped almost $4 on Friday amid news of a big drop in U.S. drilling rig counts as producers respond to oversupply.
This was good news for investors who have seen oil prices collapse on world markets due to a glut in global supply. Prices have plunged more than 50 per cent since the highs of last summer.
"We are starting to see companies forgo new projects or investment to expand existing projects and, as that happens, some of the expectation for future supply growth is starting to get trimmed," said Craig Fehr, Canadian markets specialist at Edward Jones in St. Louis.
"And so, over time, the market’s expectations for where that bottom is for oil will be adjusted as more and more of these stories come out about companies laying down rigs or trimming back on future investment."
Investors also digested earnings reports from energy sector heavyweight Imperial Oil (TSX:IMO), which posted fourth-quarter earnings of $671 million or 79 cents a share, seven cents ahead of estimates. Earnings were down 36 per cent from a year ago while production averaged 315,000 gross oil-equivalent barrels per day, down from 329,000 barrels a year ago. Its shares were ahead $2.11 or 4.5 per cent to $49.35.
Canadian Oilsands (TSX:COS) was a major gainer, up 20.4 per cent to $9.45, after TD Securities raised the target price of the stock to $8.50 from $8.
Metal prices were mixed with March copper unchanged at $2.49 a pound and the base metals component gained four per cent.
Financials also lent support, up 1.45 per cent.
The gold sector was flat as April gold billion closed down $2.30 to US$1,276.90 an ounce.
Meanwhile, the Institute for Supply Management's index on U.S. manufacturing showed the sector expanded at a slower pace for a third straight month as a stronger U.S. dollar and damage from the collapse in oil prices weighed on business spending.
The ISM's index came in at 53.5, down from 55.5 in December.
Markets have been sensitive to any signs of weakness in the U.S. economy, since it has come to be viewed as the major prop for the overall global economy. Growth in China has stalled and the European Central Bank is just now embarking on a program of quantitative easing aimed at stabilizing the eurozone economy and boosting inflation.Suggest a correction