* TSX ends up 1.05% at 20,839.63

* Posts its highest closing level since June 2022

* Financials rise 1.3%; materials group adds 2.4%

* Canadian CPI holds steady at 3.1% year-over-year

Dec 19 (Reuters) - Canada's main stock index rose on Tuesday to an 18-month high, led by financial and forest product shares, giving investors with spare cash an incentive to increase their market exposure, analysts said.

The Toronto Stock Exchange's S&P/TSX composite index ended up 216.92 points, or 1.05%, at 20,839.63, its highest closing level since June 2022.

"Many investors are underweight equities and not positioned for a sustained market rally," said Brandon Michael, senior investment analyst at ABC Funds. "The biggest risk for cash heavy investors is when to commit their ample cash reserves to the market."

The Toronto market has strengthened 11.5% since October as investors bet that central banks will shift to cutting interest rates in the coming months.

"The market is forward looking and sees interest rates lower in the future and an economic outlook that's improving," Michael said.

Still, money markets reduced bets that the Bank of Canada would begin easing as soon as March after data showed Canada's annual inflation rate unexpectedly remaining at 3.1% in November.

Financials, the sector with the highest weighting on the TSX, rose 1.3%, while the materials group, which includes precious and base metals miners and fertilizer companies, advanced 2.4%.

Forest product companies were among the biggest gainers, with shares of Canfor Corp ending up 12.3%.

Gold and copper prices rose, while oil settled 1.3% higher at $73.44 a barrel, extending the previous session's gains after attacks by Yemen's Iran-aligned Houthi militants on ships in the Red Sea disrupted maritime trade.

Energy was up 1.5% and consumer staples added 1.4%. (Reporting by Fergal Smith in Toronto and Shashwat Chauhan in Bengaluru; Editing by Tasim Zahid, Shweta Agarwal and Richard Chang)