* Potash, Agrium tumble after Merrill Lynch downgrade
* Energy sector falls 5.8 percent as oil slides to $95
* U.S. Senate approval of bailout fails to lift mood (Adds analyst comments, details, updates figures)
TORONTO, Oct 2 (Reuters) - The Toronto Stock Exchange's main index sank more than 5 percent on Thursday as two major fertilizer companies plunged after a ratings downgrade, while oil and gold prices also fell.
Potash Corp of Saskatchewan (POT.TO) and Agrium Inc (AGU.TO), which had helped power the market during the commodities boom, dropped 20 percent after Merrill Lynch downgraded the stocks because of what it said was an uncertain earnings outlook for the sector. [ID:nN02254052].
The hefty materials group, which includes fertilizer companies, led the market down, tumbling 11 percent.
The energy sector slid 5.8 percent as oil retreated to $95 a barrel on persistent concerns over weakening fuel demand in a cooling global economy [ID:nSP360782], and as the U.S. Senate's passage of the revised financial rescue plan failed to dispel those worries.
Gold futures dropped 4 percent on a firmer U.S. dollar and profit-taking, with Barrick Gold ABX.TO down 8 percent at C$36.58.
The combination of factors hit the Toronto market hard, said Joe Ismail, technical analyst at Maison Placements Canada. As well, investors were cautious despite the passage of the revised $700 billion rescue plan for Wall Street.
"Nobody is 100 percent sure it's going to happen," said Ismail. "It's purely political right now."
Shortly after 11:30 a.m., the S&P/TSX composite index .GSPTSE was down 592.15 points, or 5.05 percent, at 11,122.36, with all of its 10 main groups lower. Earlier, the index tumbled 5.8 percent before clawing back.
The financial services sector fell 2.6 percent with Toronto-Dominion Bank TD.TO down 2 percent at C$61.37.
The fate of the rescue plan, aimed at allowing the U.S. Treasury to mop up bad mortgage-related assets from financial institutions, rests with the House of Representatives.
The House, which rejected the bill on Monday, is expected to vote on the bill on Friday. [ID:nSP164112]
Still, until there is more clarity on the global economic outlook, markets will remain rocky, said Ismail.
Potash Corp fell to C$108.75, while Agrium dropped to C$46.77 after the Merrill Lynch downgrade on the sector in the wake of disappointing earnings from Mosaic Co (MOS.N).
Elsewhere, not one initial public offering was done on the Toronto Stock Exchange in the third quarter, consulting firm PricewaterhouseCoopers said, in issuing its latest quarterly IPO survey.
With ongoing market volatility, the IPO climate may not improve until 2009, the PwC said. It marks the first time this measure has recorded no activity on Canada's senior equities market. [ID:N02268284] ($1=$1.08 Canadian) (Reporting by Jennifer Kwan; editing by Rob Wilson)