* Market unable to rebound from Monday's sharp slide
* News that Manulife to issue stock rattles financials
* Talk of takeover for Nexen sparks rally in energy shares (Adds U.S. markets close)
By Frank Pingue
TORONTO, Dec 2 (Reuters) - The Toronto Stock Exchange's main index ended a see-saw session lower on Tuesday as news that insurer Manulife Financial (MFC.TO) will issue new stock offset rallying energy shares after talk of a takeover of Nexen Inc NXY.TO.
The tug-of-war between the slumping financial shares and rallying energy stocks left the Toronto Stock Exchange bouncing around in a wide range that saw it up as much as 120 points and down as much as 186 points.
Manulife's drag on the heavily weighed financial group kept the broader index from tagging along with a sharp rally in U.S. stock markets, which managed to bounce back from a steep slide in the previous session.
"I just think there is a lack of confidence from both buyers and sellers," said Ian Nakamoto, director of research at MacDougall, MacDougall & MacTier.
Manulife shares fell 2.79 percent to C$19.89 after it said it would report a fourth-quarter loss of C$1.5 billion due to sliding markets and issue $2.1 billion in common equity to bolster its capital position. [ID:nN02548876]
The sour mood on Manulife shares weighed on other sector heavyweights such as Sun Life Financial (SLF.TO), whose shares fell 10 percent to C$23.12, while Great-West Lifeco (GWO.TO) fell 6 percent to C$21.90.
After a 9.32 percent drop in the previous session, which marked the Toronto Stock Exchange's biggest percent slide in a single session since October 1987, the key index is now down 10 percent on the week.
Helping to boost the energy group in the face of lower oil prices and to cushion the broader index's slide was a report on the Financial Times website that French oil major Total SA (TOTF.PA) will make a C$19.7 billion ($15.8 billion) offer for Nexen, Canada's No. 4 independent oil explorer.[ID:nN02269547]
Nexen subsequently issued a statement saying it wasn't aware of any corporate developments to account for the activity in its shares.
Nexen shares rose 9 percent to C$23.88. Other energy players making sharp gains included Talisman Energy TLM.TO, up 9 percent at C$11.21, and Paramount Resources (POU.TO), up 7 percent at C$7.87.
"In this kind of environment it's not surprising to see takeover and acquisition activity. You just have some stocks that are severely depleted price-wise," said Bruce Latimer, trader at Dundee Securities. "And if there is a takeover bid for a component of a particular sector, then it's bullish for the sector."
The S&P/TSX composite index .GSPTSE finished down 78.40 points, or 0.93 percent, at 8,327.81 one day after lower commodity prices and gloomy U.S. economic news pushed it down 9.32 percent, its biggest percent decline since October 1987.
The financial group, which makes up about a third of the key index, fell 4.3 percent, while the energy sector jumped 1.7 percent. Seven of the TSX composite's 10 subindexes ended lower.
The information technology group skidded 0.91 percent, led by a 7.47 percent slide in Research In Motion RIM.TO shares after an analyst cut his outlook for the BlackBerry maker because of the weak global economy. [ID:nN02231199]
Political uncertainty in Canada, which could see the Conservative government temporarily suspend Parliament to stop opposition parties from voting it out and taking power, was also shouldering some of the blame for the index's drop.
"We have this whole political issue going on that is certainly not going to entice foreigners to invest in Canada right now," said Julie Brough, vice president at Morgan Meighen & Associates.
"I don't think it's a cataclysmic issue on it's own, but it certainly doesn't do anything to restore confidence in an environment where there is very little confidence."
In the United States, the Dow Jones industrial average .DJI rose 270 points, or 3.31 percent, to 8,419.09, while the Nasdaq composite index .IXIC ended up 51.73 points, or 3.7 percent, at 1,449.80.
$1=$1.25 Canadian Editing by Peter Galloway