The Toronto Stock Exchange rallied more than 3% on Tuesday, surging after news from south of the border that the Federal Reserve slashed interest rates to an historic low.

The S&P/TSX composite index rose 262.28 points, or 3.1%, to close at 8,724.11. Most of the gains accumulated late in the day, following the Fed’s move to cut the target fed funds rate for interbank lending from 1% to a range of zero to 0.25%.

The materials group led the index, advancing 5.6% on rising prices of gold, wheat and other commodities.

Gold for February delivery finished up US$6.20, or 0.7%, at US$842.70 an ounce on the Comex division of the New York Mercantile Exchange, which sent the sub-gold index up 3.9%.

Agnico-Eagle Mines Ltd. shares rose 7.3% to close at $56.02 and Alamos Gold Inc. surged 9.5% to $8.18.

Goldcorp Inc. gained $1.62, or 4.5%, to end the day at $38.00.

Potash Corp. shares advanced $7.41, or 8.7% on an analyst upgrade and higher prices for wheat and corn. The shares closed at $93.00.

Agrium Inc. shares surged $3.88, or 10.3%, to finish at $41.72.

Concerns that the challenging economic environment will further reduce energy demand in the months ahead pulled oil futures down another 2%. Crude for January delivery ended down 91 cents at US$43.60 a barrel on the New York Mercantile Exchange.

Still, the energy group gained 4% in Tuesday’s session.

Canadian Natural Resources Ltd. was up 5.2% to $49.00 and EnCana Corp. shares gained 5.2% to end at $57.82.

Imperial Oil Ltd. rose 5.6% to $42.69 and Suncor Energy Inc. gained 5.6% to finish at $26.61.

The financials group also experienced gains, moving higher by 1.4% on Tuesday.

CIBC shares rose 3.7% to end the day at $49.90.

Manulife Financial Corp. gained 4% to $21.13 and Sun Life Financial Corp. shares surged 7.9% to $25.25.

Bank of Montreal shares tumbled nearly 7% after it announced plans to sell $1 billion of discounted stock to shore up capital. BMO shares finished at $30.35, down $2.22.

Phone company Telus Corp. saw its shares slip 0.3% to $34.03 after it reaffirmed its financial estimates for 2008 and said sales would grow as much as 6.5% next year.

Bombardier Inc. shares jumped 6.6% to $4.34 after news that it was awarded a US$176-million deal to work with Alstom Transport to build 72 double-deck train cars for Belgian National Railways.

The Venture exchange moved higher by 6.65 points, or 0.9%, to end at 723.46.

The loonie got a boost of more than two cents against the American dollar, closing at US83.21¢, up US2.02¢.

American equities also showed strength following the Fed’s interest rate cut.

The Dow Jones industrial average gained 359.61 points, or 4.2%, to end at 8,924.14.

The Nasdaq composite index rose 81.55 points, or 5.4%, to close at 1,589.89.

The S&P 500 index advanced 44.61 points, or 5.1%, to finish at 913.18.

IE