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TORONTO (Reuters) - Canada's main stock index fell nearly 3 percent on Thursday, its largest one-day drop this year, as weak economic data from the United States, China and Europe fanned global growth fears and drove down commodity prices.
Oil, gold and copper prices all fell after a raft of disappointing data, including news that U.S. manufacturing grew at its slowest pace in 11 months in June and hiring slowed as export demand waned. Chinese and European factory activity also slowed.
"Global data has been very weak, and markets have been unable to sustain the recent rally," said Fergal Smith, managing market strategist at Action Economics in Toronto. The TSX rallied to a five-week high on Tuesday, but has since lost ground.
The Toronto Stock Exchange's S&P/TSX composite index .GSPTSE closed down 351.02 points, or 2.99 percent, at 11,408.32. It was the biggest one-day percentage drop since October 3.
Every major sector in the TSX was lower. The heavyweight energy group, down 5.4 percent, and materials, down 4.2 percent, had the biggest impact. The materials sector includes gold and base metal miners.
"We're seeing a bit more evidence that the global economy, while it's still going to continue to grow, will probably do so in a much slower fashion," said Craig Fehr, Canadian market strategist at Edward Jones in St. Louis, Missouri.
"That has investors concerned. That's putting pressure on energy and commodity prices and thus weighing on the TSX."
Suncor Energy (SU.TO) had the biggest impact, falling 6.6 percent to C$27.70.
Financial issues fell 2.3 percent, led by Royal Bank of Canada (RY.TO), which dropped 3.2 percent to C$51.33, and Toronto-Dominion Bank, which was 2.8 percent lower at C$78.36.
Banking industry sources said ratings agency Moody's was set to announce downgrades of many of the world's biggest banks on Thursday. The agency said in February that RBC could be cut by two notches.
The three companies played the biggest role of any stocks in pushing the Toronto market lower.
Commodity prices were broadly lower, with the Thomson Reuters-Jefferies CRB Index .CRB down 2.1 percent on signs of a slowdown in global growth.
U.S. crude futures slipped below $80 a barrel for the first time since October, gold posted its biggest one-day drop since February 29 and copper retreated to two-week lows. <O/R> <GOL/> <MET/L>
"We're going to continue to see a high degree of volatility until a more normalized economic environment exists," said Bill Horton, chief investment officer at MD Physician Services. "That could be months, and it could be more than months."
Business surveys showed the downturn in the euro zone's private sector becoming entrenched, as falling new orders and employment levels dented business confidence.
A similar survey of private sector activity in China compiled by HSBC found its factory sector had shrunk for an eighth straight month in June on weaker demand for exports.
In Canada, retail sales dropped 0.5 percent in April from the previous month, defying expectations of an increase, in another sign that second quarter growth was disappointing.
Other major decliners included Encana Corp (ECA.TO) shares, which dropped 7.9 percent to C$20.39. Encana was also affected by news its capital spending would likely exceed its cash flow for at least the next 18 months as it accelerates its transition to more oil and liquids-rich natural gas production.
Valeant Pharmaceuticals International Inc (VRX.TO) said it expected second-quarter results to be weaker than its first quarter. Its shares dropped more than 5 percent.
Editing by Jeffrey Hodgson