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By Jonathan Spicer
TORONTO, Jan 3 (Reuters) - The Toronto Stock Exchange's main index was flat on Thursday morning as the effect of bullish oil and gold prices on commodity shares was offset by worry over inflation, which undercut financial shares.
Materials and energy issues led the upside, yanked higher by spot gold and crude oil prices, which remained near record highs.
Strong crude oil prices, which reached $100 a barrel on Wednesday, stoked global inflation fears. That soured banks and other financial institutions, which are typically sensitive to inflation jitters.
"The financial index is expected to resume the downtrend as credit woes in the United States protract, and the banks are deep in the woods on that," said John Ing, president of Maison Placements Canada.
The S&P/TSX composite index .GSPTSE was up 2.52 points at 13,929.28. Seven of the index's 10 main groups were in the red, including a 0.7 percent drop in financials, the biggest sector by weight.
Financial institutions were the four biggest losers by weight by midmorning, with Bank of Nova Scotia (BNS.TO) tumbling 60 Canadian cents to C$49.03, and Royal Bank of Canada (RY.TO), the country's biggest bank, off 48 Canadian cents at C$49.72.
The utilities sector dropped 0.3 percent and consumer discretionary fell 0.6 percent.
Fertilizer-producer Potash Corp of Saskatchewan (POT.TO), the TSX's eighth-biggest listing by weight, led the upside, climbing C$2.21 to C$147.22.
Gold-mining firms rose 1.1 percent, with Yamana Gold (YRI.TO) rising 45 Canadian cents to C$14.19 as the price of U.S. spot gold hovered around $858.50 an ounce.
The energy and materials sectors advanced 0.8 percent each, as U.S. crude oil traded at $99.31 a barrel on futures markets. EnCana (ECA.TO), Canada's biggest oil and gas producer, was up 73 Canadian cents at C$69.98.
Ing suggested there is a "significant catch up ahead of us" because TSX resource shares, particularly gold producers, lagged their underlying commodity prices in 2007. ($1=$0.99 Canadian) (Reporting by Jonathan Spicer; Editing by Peter Galloway)