The S&P/TSX composite index jumped 251.98 points to 14,560.42.
The Canadian dollar plunged 1.53 cents to 81.07 cents US after the Bank of Canada cut its key rate to 0.75 per cent from one per cent due to economic fallout from the collapse in oil prices.
Markets had universally expected the bank to leave the rate unchanged from where it had been since September 2010.
Oil prices have plunged 55 per cent since last June amid a glut of supply and have fallen about 40 per cent just since the end of November after OPEC concluded its last meeting with a vow to leave production levels unchanged.
The TSX was lifted by a 3.15 per cent rise in the energy sector as oil prices climbed $1.31 to US$47.78 a barrel and traders considered how a lower Canadian dollar will be a positive for some TSX sectors.
"A low dollar for energy producers is a positive," said Stephen Carlin, vice-president Canadian equities at CIBC Asset Management, explaining that "we sell the product in U.S. dollar terms, but we have a cost base in Canada — so a lower Canadian dollar makes our cost structure cheaper on a relative basis, relative to the U.S. producer."
The effect on other sectors varies.
"It's modest pain for . . . the food retailers. It will cost you more to import those strawberries from California," Carlin said.
A lower Canadian dollar will raise costs for some of the discretionary retailers if they‘re bringing product in from the United States, although the effect is unlikely to be felt until the end of the year because typically they are six to nine months ahead of the current season.
"It helps the industrials but on a lagged effect (of 18 to 24 months), he added.
New York indexes were higher after the Wall Street Journal reported that the board of the European Central Bank is proposing a substantial program of quantitative easing, which involves a massive round of government bond purchases.
The newspaper said the bank would spend about 50 billion euros monthly on the program. Markets had been speculating the central bank would announce a program involving spending between 500 billion and 700 billion euros annually.
Economic growth has been tepid and there have been worries that the region could fall prey to deflationary pressures, a situation where businesses and consumers hold off on purchases in the hope that items will just get cheaper.
The Dow Jones industrials was 39.05 points higher at 17,554.28, the Nasdaq rose 12.57 points to 4,667.42 and the S&P 500 index climbed 9.57 points to 2,032.12.
Elsewhere on the TSX, the base metals group gained 5.67 per cent with March copper ahead two cents at US$2.61 a pound.
Most TSX sectors were higher with added support coming from industrials and financials, both ahead about 1.5 per cent.
The gold sector rose 0.67 per cent as February bullion faded 50 cents to US$1,293.70 an ounce, giving up early gains after the ECB report.
Telcos led decliners, down 1.7 per cent.