Aug. 4 (Bloomberg) -- Domtar Corp., North America’s largest maker of paper for copiers and envelopes, rose the most in 26 years as signs of stabilizing paper demand spurred speculation the company will resume paying dividends.

Domtar soared C$5.36, or 26 percent, to C$25.82, at 3:59 p.m. in Toronto Stock Exchange trading. The gain was the biggest since at least 1983 for the Montreal-based company, according to Bloomberg data.

Domtar today said second-quarter net income doubled to $48 million, or $1.12 a share, from $24 million, or 56 cents a year earlier. Excluding one-time items such as U.S. alternative fuel credits, the company said it had a loss of 76 cents. That matched the average estimate of 16 analysts surveyed by Bloomberg.

“We see the balance sheet improving and the company is pointing to stabilizing paper demand in the third quarter,” Michael Richmond, an analyst at Salman Partners Inc. in Vancouver, said today in a telephone interview. “There’s renewed interest in Domtar’s ability to return cash to shareholders.”

North American demand for printing and writing paper fell 24 percent in the first half of the year, according to figures from the Montreal-based Pulp & Paper Products Council, a trade group. Paper consumption has slumped as magazines lost readers to the Internet and the economy slowed.

“Domtar is prudently optimistic about an economic recovery with market conditions in its paper business beginning to stabilize,” the company said today in a statement. “While demand is still weak overall, the company expects paper volumes to stay flat to positive by year-end.”

Debt Reduction

Domtar said today its net debt-to-total capitalization fell to 45 percent at the end of the second quarter from 50 percent at the end of 2008.

Domtar Corp. was formed from the combination of Domtar Inc. and Weyerhaeuser Co.’s fine paper assets in 2007. Domtar Inc. said Oct. 27, 2005, it would suspend its dividend in a bid to return to profitability.

To contact the reporter on this story: Christopher Donville in Vancouver at cjdonville@bloomberg.net.

Last Updated: August 4, 2009 17:40 EDT