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By Leah Schnurr
TORONTO, Dec 4 (Reuters) - The Toronto Stock Exchange's main index finished lower on Tuesday as financial issues were hit by more worries over the health of the U.S. economy.
The stimulating effect of a cut in interest rates by the Bank of Canada was undermined by a gloomy outlook from the bank, which said it expects U.S. subprime mortgage troubles to last longer than anticipated. The central bank cut its key rate to 4.25 percent from 4.5 percent.
"The eye of the storm is still in the U.S. in terms of what's going to happen there," said Ian Nakamoto, director of research at MacDougall, MacDougall & MacTier.
"Are we in a mid-cycle slowdown or are we in a recession -- we haven't declared it yet."
Also in the sector, Laurentian Bank of Canada (LB.TO) was down C$1.16, or 2.9 percent, at C$39.44 after its fourth-quarter earnings missed expectations.
The S&P/TSX composite index .GSPTSE closed down 77.55 points, or 0.57 percent, at 13,579.62 with six of the index's 10 main groups lower.
Neil Andrew, associate portfolio manager at Leeward Hedge Funds, said he expects the interest rate cut will help boost the market in the long run.
"We hope it will be the beginning of a shot in the arm for Canadian equity markets," Andrew said.
But he added that troubles south of the border will persist for a while. "The issues that were created in the U.S. will not resolve themselves overnight."
Materials issues fell 0.4 percent as industrial metals prices fell on worries over slowing demand. Ivanhoe Mines (IVN.TO) fell 48 Canadian cents, or 4.3 percent, to C$10.70 and Teck Cominco Ltd TCKb.TO was off C$1.36, or 3.6 percent, to C$36.12.
The small utilities sector was 1.2 percent lower.
On the upside, Agrium Inc (AGU.TO) rose C$1.82, or 3 percent, to C$62.75 a day after announcing it will buy U.S. agricultural products supplier UAP Holding Corp UAPH.O for $2.65 billion, including debt.
Biovail Corp BVF.TO helped lift the health care sector 0.5 percent after the company came to an agreement with Watson Pharmaceuticals Inc WPI.N that will delay a generic version of Biovail's Cardizem LA heart drug.
Biovail was up 35 Canadian cents, or 2.4 percent, at C$14.93.
Market volume was 410 million shares worth C$6.5 billion. Decliners outpaced advancers 975 to 665. The blue chip S&P/TSX 60 index .TSE60 closed down 3.90 points, or 0.49 percent, at 792.54.
In New York, credit concerns also weighed on markets, as investors worried about their impact on bank profits and the economy as a whole.
The Dow Jones industrial average .DJI was down 65.84 points, or 0.49 percent, at 13,248.73, and the Nasdaq Composite Index .IXIC fell 17.30 points, or 0.66 percent, to 2,619.83.