Traders work in the product options pit at the New York Mercantile Exchange in New York City on Thursday. Markets rebounded on strong commodity prices. (Seth Wenig/Associated Press)

Stock exchanges in Canada and the United States endured some stomach-churning movements but ended the trading day Thursday with impressive gains, driven by rumours of Washington's new fix for ailing credit markets.

Toronto's main exchange, the TSX, ended Thursday up 186 points, closing at 12,064. The TSX opened the day up more than 500 points but saw those gains get pared back around noontime.

When the dust had cleared in Toronto, the TSX had posted a decent gain of 1.57 per cent.

Markets in Canada and the United States were boosted by an afternoon news report that U.S. Treasury Secretary Henry Paulson was considering the establishment of a federal agency that would take over the especially bad parts of ailing financial firms.

Washington set up a similar type of agency in the 1980s to dispose of assets from failed savings-and-loan institutions.

In New York, the Dow Jones industrial index, which had fallen 150 point around lunchtime, shot up on the Paulson rumour and closed the day up a whopping 410 point, to end at 11,019.

That represented a gain of 3.86 per cent.

Stock watchers had been bracing for the worst as markets opened.

Earlier in the week, Lehman Brothers had declared bankruptcy while Merrill Lynch & Co. and American International Group Inc. had been taken over, driving markets well into negative territory.

On Thursday, however, oil prices broke above the $100 US level, up $3.69 in the morning fixing on the New York Mercantile Exchange to $100.85.

That induced investors to buy Canadian issues, because foreign buyers often purchase Canadian companies as a way to invest in oil without buying the commodity directly.

U.S. light crude oil for October delivery, however, eventually fell 31 cents to $96.85.

The TSX energy index lost value as the day progressed, up only 0.30 per cent at the close of trading.

Gold, another commodity which Canada produces, also was up, in this case, $46.50, to $897 an ounce. The TSX's metals index ended the trading day up 19.28 per cent.

Besides the rumour of a new federal bailout agency, analysts also applauded new moves by global central banks to increase the pool of money available for corporate financing by more than $180 billion US.

These institutions are attempting to make sure that there are sufficient resources for firms to borrow as they try to recapitalize their balance sheets or expand their businesses.

"At a time when default risk has shut down the interbank lending market, threatening to paralyze credit markets and credit relationships in all sectors of the economy, the central banks have stood up to assume the risk and responsibility of funding the banking system," said Carl Weinberg, the chief economist at High Frequency Economics.