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* TSX falls 28.68 points, or 0.23 percent, to 12,512.09 * Nine of 10 main sectors decline * Gold stocks decline with falling gold prices By John Tilak TORONTO, Jan 3 (Reuters) - Canada's main stock index fell on Thursday, with lower resource prices weighing on material and energy stocks, as investors fretted about looming budget battles between U.S. lawmakers in the wake of the "fiscal cliff" deal. U.S. President Barack Obama and congressional Republicans face even bigger budget battles in the next two months after a hard-fought "fiscal cliff" deal narrowly averted potentially devastating austerity measures in the way of tax increases and spending cuts. "The next battle is going to be the debt ceiling, and then after that it's going to be the sequester. The debt ceiling debate especially sounds like it's going to be fairly nasty," said Ian Nakamoto, director of research at MacDougall, MacDougall & MacTier. The Toronto Stock Exchange's S&P/TSX composite index was down 28.68 points, or 0.23 percent, at 12,512.09. Nine of the 10 main sectors of the index were in the red. The materials sector, which includes mining stocks, played the biggest role in leading the index lower. The group lost 0.3 percent, tracking a decline in gold prices. Goldcorp Inc slipped 1 percent to C$36.60, and Barrick Gold Corp gave back 0.5 percent to C$34.92. Oil fell to $112 a barrel as rising oil supply and worries of U.S. budget battles offset upbeat economic data from China. China's official purchasing managers' index (PMI) for the non-manufacturing sector rose to a four-month high in December. Investors are looking at "the sustainability of the data from China," Nakamoto said. "Is it just a short-term phenomenon or is it going to be long-lasting, maybe over the next 3 to 6 months?" The energy sector dropped 0.2 percent. Suncor Energy Inc was down 0.8 percent, at C$33.13. In company news, an Imperial Oil Ltd spokesman said on Wednesday the company's Kearl oil sands project in northern Alberta could start commercial production in the coming weeks after a previous target was delayed from the end of December. Imperial shares fell 0.06 percent to C$42.42.