* TSX ends up 0.5% at 21,119.21

* Materials sector rallies 2.3%

* Canadian factory PMI shows slower pace of contraction

* Canada Goose shares climb 7.9%

Feb 1 (Reuters) - Canada's main stock index rose on Thursday as encouraging U.S. manufacturing data helped revive investor optimism after markets were spooked in the previous session by the Federal Reserve's interest rate guidance.

The Toronto Stock Exchange's S&P/TSX composite index ended up 97.33 points, or 0.5%, at 21,119.21. On Wednesday, the index posted its biggest decline in two weeks as the Fed dashed hopes of a rate cut as soon as March.

"Sober second thought" has helped the market rebound, said Brian Madden, chief investment officer at First Avenue Investment Counsel Inc.

"Quite often these highly anticipated policy announcements spawn a lot of knee jerk trading," Madden said.

Wall Street also rallied as investors looked to a spate of high-profile earnings as well as the U.S. employment report which is due on Friday.

Stronger than expected U.S. manufacturing data boosted the market, said Madden, adding "fingers crossed we might be about to mark the end of the manufacturing recession in the U.S."

U.S. manufacturing stabilized in January amid a rebound in new orders, while Canadian manufacturing data also offered encouragement. It showed a slowdown in the pace of contraction in the sector as inflation pressures eased and firms grew more confident about the outlook.

Sectors such as industrials and consumer discretionary, which includes large automotive suppliers, could benefit from a manufacturing turnaround. They rose 1.9% and 1.5% respectively.

Canada Goose Holdings Inc shares climbed 7.9% after the luxury parka maker forecast fourth-quarter revenue above analysts' estimates.

The materials sector, which includes precious and base metals miners and fertilizer companies, rallied 2.3% as gold prices rose, but energy was a drag.

It fell 1.3% as the price of oil settled 2.7% lower at $73.82 a barrel after false market speculation that Israel had agreed to a Gaza ceasefire proposal. (Reporting by Fergal Smith in Toronto and Purvi Agarwal in Bengaluru; Editing by Vijay Kishore and Sandra Maler)