Canada’s main stock index posted its largest rally in almost three years on Wednesday after U.S. Federal Reserve Chairman Jerome Powell suggested a possible pause in interest rate hikes next year.

North American markets were calm until Powell’s luncheon speech in New York sparked a rally in risk assets aside from energy.

“We’re seeing both the Canadian and U.S. stock markets posting some pretty decent numbers today,” said Candice Bangsund, portfolio manager for Fiera Capital.

She said the market interpreted his comments as dovish, meaning rates won’t move substantially higher, or even that the U.S. central bank may take a pause in early 2019 after its expected increase next month.

“The environment of rising interest rates that we’ve seen this year has created a lot of problems for equity markets, so the prospect of the Fed slowing down or not proceeding as fast as they may have communicated is good news for equity investors,” Bangsund said in an interview.

The markets have been shaken by Powell’s hawkish tone and insistence that rates would increase in the face of a bright economic outlook.

“So I feel like his speech today was maybe walking back on some of that hawkishness and adopting a more cautiously optimistic or balanced tone.”

The S&P/TSX composite index closed up 227.16 points to 15,171.25, the largest single-day gain since Feb. 17, 2016.

The cannabis-heavy health-care sector posted the largest gains on the day but the rally was fuelled by the key materials, industrials and financial sectors on the back of rising gold and metals prices and strong bank earnings reports.

The December gold contract was up US$10.20 at US$1,223.60 an ounce and the March copper contract was up US8.75¢ at US$2.81 a pound.

Telecommunications and energy were the only sectors to fall.

The January crude contract was down US$1.27 at US$50.29 per barrel. Oil prices fell on an inventory report indicating a 10th consecutive week of stockpile building in the U.S. that threatens the global supply/demand balance.

In New York, the Dow Jones industrial average was up 2.5% or 617.70 points to 25,366.43, the biggest gain in eight months. The S&P 500 index rose 61.61 points at 2,743.78, while the Nasdaq composite was up almost 3% or 208.89 points to 7,291.59.

The rally helped cyclical sectors of the market at the expense of more defensive plays such as telecom and utilities.

Sectors like technology and consumer discretionary that absorbed the biggest hits during the recent sell off recovered the most Wednesday.

However, with a meeting approaching this weekend between the presidents of the U.S. and China, the coming days could be a completely different story, said Bangsund.

“There are so many headline risks out there that the tables could turn tomorrow or overnight,” she said, pointing to the trade battle between the world’s two largest economies, the OPEC meeting next week, Brexit and the Italian budget showdown with the EU.

The Canadian dollar traded down at an average of US75.18¢ compared with an average of US75.25¢ on Tuesday.

The January natural gas contract was up US40.7¢ at US$4.70 per mmBTU and the March copper contract was up US8.75¢ at US$2.81 a pound.