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TORONTO, Aug 5 (Reuters) - Toronto's main stock market index plunged more than 300 points on Tuesday morning as a broad sell-off in oil and other key commodities knocked the index to its lowest level since late March.
The Toronto Stock Exchange's S&P/TSX composite index .GSPTSE was down 294.87 points, or 2.2 percent, at 13,201.66 after dropping as low as 13,130 earlier in the day.
It was the index's lowest level since March 25, when it hit 13,019.72. Its low for 2008 is 11,982.89, set on Jan 22.
Only five of the TSX index's main groups were down but a big 6.9 percent decline in the resource-heavy materials group and a 5.2 percent fall in oil issues knocked it for a loop.
U.S. crude oil fell 0.8 percent to around $120.50 a barrel after touching as low as $118 earlier in the session as worries about a tropical storm in the Gulf of Mexico lessened.
Meanwhile, resource shares were led lower by fertilizer producers as potash prices slipped on fears of a global economic slowdown.
Gold, which is seen as a hedge against inflation, dropped to as low as $880 an ounce from $895.55, swept up in the broad commodity sell-off and hit by a rising U.S. dollar.
Despite the plunge, at least one market pundit saw the declines as a turning point for the market, which he said has experienced irrational gains over the past year on the back of rising natural resource prices.
"This is wonderful news. We are getting back to a sense of sanity," said Rick Hutcheon, president and chief operating officer at RKH Investments.
"We have energy going in the right direction. Gold is down and the U.S. market is running in the right direction. I don't understand why people are unhappy here."
Among the key issues falling on Tuesday were Potash Corp, which dropped C$22.90 to C$184.09, and fellow fertilizer company Agrium Inc (AGU.TO), which fell C$7.15 to C$82.62. Agrium is set to release quarterly results later in the week.
Most key energy shares were lower including Suncor Energy (SU.TO), which slipped C$3.78 to C$52.34, and Canadian Natural, which dropped C$5.68 to C$75.60.
Financial shares helped cushion some of the blow with a rise of 1 percent spurred by merger activity in the mutual fund market.
Saxon Financial SFI.TO soared 64.2 percent to C$20.85 after IGM Financial Inc (IGM.TO) said it planned to buy Saxon in a friendly cash deal worth about C$287 million ($276 million).
Home Capital (HCG.TO) jumped C$2.19 to C$38.76 as it reported a 20 percent jump in its second-quarter results and boosted its dividend. ($1=$1.04 Canadian) (Reporting by Scott Anderson; Editing by Peter Galloway)