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(Refiles to fix time to p.m. from a.m. in sixth paragraph)
* TSX drops 1.53 percent to 7,569.52
* Financials lead TSX lower, down 4 percent
* Bank of Canada cuts rates to record low 0.5 pct (Adds details, quote)
By Jennifer Kwan
TORONTO, March 3 (Reuters) - Toronto's key stock market index fell sharply on Tuesday morning with financial shares dropping anew on concern about eroding credit quality at Canada's big banks.
Financials dropped 4 percent after the last two of Canada's six largest banks -- Bank of Nova Scotia (BNS.TO) and Bank of Montreal (BMO.TO) -- reported quarterly results that showed they remained profitable even as the global financial crisis raged, but that bad loans were on the upswing. [ID:nN03459519]
Shares of Bank of Nova Scotia fell 0.6 to C$26.86, while Bank of Montreal fell 0.9 percent at C$26.76. Insurer Manulife Financial (MFC.TO) fell 12.1 percent to C$10.17.
"It's continued uncertainty in the sector, continued uncertainty on guidance going forward," said Peter Chandler, senior vice-president at Canaccord Capital in Waterloo, Ontario.
"They've all accounted for and provided for increased loan loss provisions. There is a concern about is there more of that to come still."
At 12:22 p.m. (1722 GMT), the S&P/TSX composite index .GSPTSE was down 117.99 points, or 1.53 percent, at 7,569.52, with nine of its 10 main groups lower. The market had rallied 1 percent higher near the open.
The drop also came after the Bank of Canada cut its benchmark rate to a record low of 0.5 percent and signaled that it may take extra steps to pump money into a system that remains stubbornly short of credit. [ID:nN03241]
The energy sector fell 0.06 percent, while the mining-heavy materials group rose 1.4 percent. ($1=$1.29 Canadian) (Reporting by Jennifer Kwan; Editing by Peter Galloway)