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(Reuters) - The TSX fell more than 1 percent on Tuesday, after the U.S. Federal Reserve pointed to turmoil in Europe as a big risk to economic growth, but left interest rates unchanged and said there would be no new stimulus.
The Fed left the door open for further quantitative easing measures should U.S. economic growth slow further, but that failed to impress investors.
"Some would argue that we can't get QE at this point because we haven't suffered enough pain yet, which means we could be revisiting pain before we get gains," said Sid Mokhtari, market technician and director, institutional equity research, at CIBC World Markets.
The TSX dropped more than 100 points within 30 minutes of the announcement by the U.S. central bank as a sharp retreat by gold prices hit mining issues.
"It had a negative effect, but the market was trending down anyways this morning because of gold breaking down," said Sal Masionis, a stockbroker at Brant Securities.
The Toronto Stock Exchange's S&P/TSX composite index .GSPTSE closed down 147.95 points, or 1.24 percent, at 11,759.94.
The subindex of gold mining stocks fell nearly 3 percent, as bullion slid about 2.5 percent on Tuesday, posting its largest two-day loss in almost three months.
Base metal issues, which fell nearly 6 percent on the day, weighed on the broader materials sector as producers worried that tighter fiscal policies in Europe would lead to reduced demand for industrial metals.
Ivanhoe Mines (IVN.TO) was the biggest decliner, plunging 22 percent to C$16.57 after an independent arbitrator cleared the way for mining group Rio Tinto to take over the company, saying Ivanhoe's "poison pill" defense was not valid.
The Fed statement also put a damper on oil prices, which had earlier risen nearly $4 a barrel on worries over supply disruptions caused by Iranian military maneuvers in the Middle East.
"It was a bit of a surprise about the Iranian navy doing maneuvers and closing down the Straits of Hormuz," said Masionis.
Oil and gas issues, which led the TSX's gains early as U.S. crude futures rose above $100 a barrel, ended up down more than 1 percent.
Cenovus Energy (CVE.TO) was the biggest decliner, sliding 2.6 percent to C$32.95.
Italian and Spanish bond yields rose as the risk of sovereign debt downgrades across the euro zone kept markets on edge after steps towards tighter EU fiscal integration, agreed on at a summit of European Union leaders last week, failed to erase fears.
"The market was expecting something conclusive, or a bazooka if you will, out of the European summit and they didn't get what it was expecting," said Mokhtari.
Despite scant exposure to European debt holdings, Canadian financial issues have tended to sway with the prevailing winds from Europe, and on Tuesday they fell.
Weaker than expected U.S. retail sales data added to the negative tone with November sales rising less than expected as a drop in receipts for food and beverages weighed against stronger sales of motor vehicles. The figures tempered expectations of a strong holiday shopping season.
Editing by Rob Wilson