• TSX ends up 0.2% at 19,967.95
  • Financials rally 0.4%
  • Energy gains 0.7% as oil prices rise

May 29 (Reuters) - Canada's main stock index edged higher on Monday, extending its recovery from a near two-month low, as energy and financial shares gained ground after a deal was reached in Washington that could enable the U.S. to avoid defaulting on its debt.

The Toronto Stock Exchange's S&P/TSX composite index (.GSPTSE) ended up 47.64 points, or 0.2%, at 19,967.95, after posting on Thursday its lowest closing level since March 28 at 19,774.08.

Trading volume was lighter than normal with U.S. markets closed for Memorial Day.

Democratic President Joe Biden and Republican House of Representatives Speaker Kevin McCarthy on Sunday signed off on an agreement to temporarily suspend the debt ceiling and cap some federal spending.

The deal "adds confidence to investors and markets who were worried (about a possible default)," said Barry Schwartz, a portfolio manager at Baskin Financial Services.

The heavily-weighted financials group rose 0.4%, clawing back some of the losses from last week when some major banks disappointed with their corporate earnings.

Monday's gains were led by Canadian Western Bank (CWB.TO). It rallied 5.5%.

Energy was up 0.7% as the price of oil rose 0.5%.

Polls opened in Canada's main oil-producing province Alberta in a tight election race that is expected to have a significant bearing on Prime Minister Justin Trudeau's climate goals, which are already seen as lagging global peers.

Among the sectors that lost ground was consumer discretionary. It was down 0.5%.

Reporting by Fergal Smith in Toronto and Johann M Cherian in Bengaluru; Editing by Andrea Ricci and Grant McCool

Our Standards: The Thomson Reuters Trust Principles.

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