TORONTO - The Toronto stock market surged Thursday to its highest level in more than two years, a day after the U.S. Federal Reserve delivered another dose of stimulus to hopefully boost a faltering recovery.

The S&P/TSX composite index ran ahead 207.67 points to 12,878.79 led by sharp rises in commodity stocks as the Fed move further weakened the U.S. dollar, which in turn lifted prices for oil and metals.

The TSX was weighed down slightly by shares in Potash Corp. of Saskatchewan (TSX:POT) after the federal government on Wednesday rejected BHP Billiton's US$39-billion bid for the fertilizer company. BHP had to demonstrate the deal represented a likely net benefit to Canada.

Industry Minister Tony Clement gave BHP another month to change its bid before a final ruling on the transaction. PotashCorp shares were down a relatively modest $4.78 or about 3.25 per cent to $141.43.

"The third-quarter earnings were really good and so if you just were to take the valuation on what the earnings look like you would say, this is a company that's worth more than it was when the bid came in," said Gavin Graham, global strategist, Excel Funds Management.

"Because now you can see as (CEO) Bill Doyle has been saying for a while, there is a lot of value in this stock."

The Canadian dollar was off early highs but U.S. dollar weakness still pushed the Canadian dollar up 0.44 of a cent to 99.76 cents US.

The TSX Venture Exchange moved up 45.82 points to 1,994.46.

The market also advanced on a slew of well-received earnings reports from a variety of Canadian corporate heavyweights.

The Fed announced Wednesday that it will buy US$600 billion in government bonds over the coming eight months in a fresh attempt to energize the U.S. economy.

The measure is known as quantitative easing, which is aimed at creating more dollars and increasing the supply of money in the economy. The latest round of stimulus, known as QE2, involves the Fed buying US$75 billion in Treasury bonds per month until June next year.

The Fed hopes that the policy will help drive down interest rates for households and businesses, giving the wider economy its source of stimulus.

The U.S. dollar has deteriorated sharply since the Fed first raised the possibility of more stimulus in late August, which has raised commodity prices. Since commodities like oil and gold are priced in U.S. dollars, a weaker greenback makes them more attractive to buyers who use foreign currencies.

The energy sector led advancers, up 3.4 per cent as the December crude contract on the New York Mercantile Exchange was ahead $1.80 to US$86.49 a barrel.

Suncor Energy Inc. (TSX:SU) earned just over $1 billion in the third quarter amid asset disposal gains. Canada's largest oil and gas company earned 65 cents per common share in the quarter, well above analyst estimates and its shares advanced $2.58 to $35.48.

Metal prices also advanced with the December copper contract ahead 13 cents to US$3.91 a pound, taking the base metals sector ahead 3.87 per cent. Teck Resources (TSX:TCK.B) climbed $1.84 to $47.80 while Equinox Minerals (TSX:EQN) rose 50 cents or 8.47 per cent to $6.40.

Gold stocks were also stronger as the December bullion contract on the Nymex headed up $45.50 to US$1,383.10 an ounce. Goldcorp Inc. (TSX:G) improved by $1.31 to $46.20 while Barrick Gold Corp. (TSX:ABX) ran up 52 cents to $49.20.

The financial sector gained 1.16 per cent as shares in Manulife Financial (TSX:MFC) rose $1.21 or 9.38 per cent to $14.11 even as the company reported a $947 million loss for the third quarter amid some sizeable writedowns. That compared with a loss of $172 million a year ago.

Sun Life Financial Inc. (TSX:SLF) said after the close Wednesday that it rebounded to a quarterly profit of $453 million, compared to a loss of $140 million a year ago, thanks largely to an improvement in stock markets. Its shares added 37 cents to $29.16.

U.S. and Canadian markets have made solid advances since the Fed began hinting in late August that it would undertake the bond buying program by the end of the year. Since then, the Dow Jones industrial average is up almost 14 per cent, while the main TSX index has risen more than eight per cent.

And the strong showing raises questions about whether the rally is getting stretched.

"It's difficult to see how equities can rally on this Fed move alone or the election results for that matter seeing as a GOP victory in the House and QE2 had both been widely discounted in recent months," said David Rosenberg, chief economist and strategist at Gluskin Sheff.

"There have been no surprises here over the past 24 hours, just confirmations on what had already been priced in."

New York indexes powered ahead despite data which showed that more Americans applied for unemployment benefits last week, after two straight weeks of declines.

New jobless benefit claims had fallen in four of the previous five weeks, raising hopes the job market was improving. But last week’s increase to 457,000 returns claims to the level they have remained at all year.

The news came out a day before the release of October employment statistics for the U.S. and Canada.

The Dow Jones industrial average jumped 219.71 points to 11,434.84.

The Nasdaq composite index gained 37.07 points to 2,577.34 while the S&P 500 index was ahead 23.1 points to 1,221.06.

In other earnings news, telecom giant BCE Inc. (TSX:BCE) said its profits were down 5.4 per cent in the third quarter from a year ago to $528 million. Adjusted earnings per share dropped to 82 cents, ahead of analyst expectations of 75 cents per share, according to a survey by Thomson Reuters and its shares climbed four cents to $33.80.

Canadian Natural Resources Ltd. (TSX:CNQ) shares gained $1.59 to $39.33 as the company reported net earnings of $580 million in the third quarter, down from $658 million a year ago. The Calgary-based oil, gas and oilsands operator said Thursday its earnings per share stood at 53 cents in the quarter, down from 61 cents a year but ahead of analyst expectations.

Air Canada (TSX:AC.A) said net income was $261 million in the third quarter, down from $277 million last year. But operating profits at the country’s dominant air carrier quadrupled to $327 million and its shares ran up three cents to $3.87.