* TSX ends up 89.37 points, or 0.4%, at 20,269.97

* Posts its highest closing level since June 10

* Financials advance 0.8%

* Energy falls 1.2%; oil settles 3.2% lower (Adds investor quote and details throughout, updates prices)

By Fergal Smith

Aug 16 (Reuters) - Canada's main stock index rose on Tuesday to its highest level in more than two months as domestic data showed signs of inflation peaking, but gains were limited by uncertainty about whether the recent rally could be sustained.

The Toronto Stock Exchange's S&P/TSX composite index ended up 89.37 points, or 0.4%, at 20,269.97, its fifth straight day of gains and its highest closing level since June 10.

"We have seen finally a beat to the downside on the inflation number," said Steve Palmer, chief investment officer at AlphaNorth Asset Management. "Investors can interpret that as things are starting to get under control with the rising (interest) rates."

Data last week showed an easing of U.S. inflation pressures in July. It helped extend a recent rebound in global stock markets after they were buffeted this year by worries that aggressive central bank tightening to tackle inflation could derail economic growth.

Canada's annual inflation rate eased to 7.6% in July on lower gasoline prices, official data showed, prompting the Bank of Canada governor to say that inflation may have peaked but will "remain too high for some time".

The Toronto market has rallied 11.6% from its July trough.

The big dilemma for investors is to figure out if this is a bear market rally or "something that has got more legs to it," Palmer said.

The heavily weighted financial sector rose 0.8%, while consumer staples ended 1.4% higher.

Energy was a drag, falling 1.2%, as oil prices fell.

U.S. crude oil futures settled 3.2% lower at $86.53 a barrel, their lowest since before Russia's invasion of Ukraine, amid lingering worries about a potential global recession. (Reporting by Fergal Smith; Additional reporting by Aniruddha Ghosh and Sruthi Shankar in Bengaluru; Editing by Anil D'Silva and Lisa Shumaker)