TORONTO (Reuters) - Toronto's main stock index finished higher yesterday, following two days of losses, after the US Federal Reserve said it saw some signs of a more stable economy after 20 months of recession.

The Fed also kept its benchmark short-term interest rate steady near zero and said it would likely stay there for an extended period.

The big energy and financial sectors, up one percent and 0.4 percent, respectively, were the major drivers behind the index's move higher, while mining companies also showed some strength.

Oil prices settled higher above $70 a barrel on optimism about the economy, which offset concerns about rising inventories.

"Crude oil has gotten a bit of a bounce after the Fed comments," said Elvis Picardo, analyst and strategist at Global Securities in Vancouver.

"As far as the financials are concerned, any indication that comes out at all about the economy improving in North America is going to help the banks and the financial stocks."

Major names contributing to the Toronto index's rise included Suncor Energy, up 2.7 percent at C$35.86 and Sun Life Financial, which rose 2.2 percent to C$32.27.

The S&P/TSX composite index was up 30.4 points, or 0.29 percent, at 10,659.87, with six of its 10 main groups higher. The blue chip S&P/TSX 60 index closed 1.24 points higher, or 0.2 percent, at 640.21.

The higher close came after a volatile mid-afternoon session that saw the composite index give up early gains and dip briefly into the red, before heading higher again. US stocks also trimmed gains briefly shortly after the Fed statement.

"What we saw in the equity market here mirrors what we saw in the bond market right after the Fed's announcement," said John Johnston, chief strategist for Harbour Group at RBC Dominion Securities.

"Right after the Fed's announcement, in which it said it will have finished all their Treasury purchases by October, bond yields spiked and with that you saw the equity market coming under pressure."

The Fed said it will extend the duration but not the dollar amount of a programme to buy long-term government securities.

US Treasury prices fell after the statement in apparent disappointment that the central bank did not increase the amount of debt that it plans to buy, but subsequently regained some ground.

The TSX's materials sector, home to mining and fertiliser companies, fell 0.5 percent but the picture was mixed among individual names. Teck Resources climbed 3.6 percent to C$28.67, while Barrick Gold fell 1.5 percent to C$36.47.