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* TSX falls nearly 2 percent as commodities fall
* Energy and materials sectors lead downside
By Leah Schnurr
TORONTO, Aug 5 (Reuters) - The Toronto Stock Exchange's main index slumped nearly 2 percent on Tuesday, battered by tumbling resource shares that followed commodity prices lower.
Weak prices for oil and gold set the tone early in the day with the index tumbling more than 300 points shortly after the opening bell.
With just three out of the TSX's 10 main sectors pushing lower, the materials sectors accounted for the bulk of the day's declines. Potash Corp of Saskatchewan (POT.TO) was the biggest drag on the benchmark, falling 12.8 percent, while in the oil patch Canadian Natural Resources (CNQ.TO) dropped 7.7 percent.
The large financial sector benefited from the drop in resource groups as investors opted to put their money in banks instead. Bank of Montreal (BMO.TO) rose 4.6 percent.
"The money's roaring out of commodities into financials," said Sal Masionis, a stockbroker at Brant Securities. "Anything to be not in the mining or energy sectors."
"We've had a huge run in commodities over the last five or six years, and we don't know it's the end, but it certainly is a major, major change of psychology."
The S&P/TSX composite index .GSPTSE closed down 254.33 points, or 1.88 percent, at 13,242.20, after hitting a session low of 13,130.54.
The price of oil fell to a three-month low as Tropical Storm Edouard hit the Texas coast without causing any major disruptions to U.S. energy operations. Oil settled down at $119.17 a barrel, after falling as low as $118.00 earlier.
Amid widespread losses in commodities, gold also tumbled as the U.S. dollar firmed and the U.S. Federal Reserve decided to hold interest rates steady.
On Bay Street, the materials and energy sectors shed 8.6 percent and 5 percent respectively. Inmet Mining IMN.TO lost C$5.25, or 8.5 percent, to C$56.83, while Canadian Natural Resources was down C$6.28 to C$75.00.
Agriculture stocks also lagged, with fertilizer producer Potash Corp falling C$26.49 to C$180.50 and rival Agrium (AGU.TO) sliding C$6.99, or 7.8 percent, to C$82.78.
The financials group added 2.5 percent, with Bank of Montreal up C$2.17 at C$49.61 and Royal Bank of Canada (RY.TO) gaining C$1.58, or 3.4 percent, to C$48.30.
Levente Mady, a broker at MF Global Canada in Vancouver, said that while he expects there will be more downside to come for commodities, he still prefers resource issues over the financials in the long term.
"The problems in the financials sector are here to stay and they will get worse before they get better," said Mady.
The only other sector that fell Tuesday was the small utilities sector, which was off 0.4 percent.
Shares of Air Canada ACa.TO jumped 56 Canadian cents, or 11.3 percent, to C$5.51 as Canada's largest airline benefited from the easing price of oil.
Other transportation stocks also benefited as oil slid below $120 a barrel, with Canadian Pacific Railway (CP.TO) rising C$2.58, or 4.1 percent, to C$65.52. The industrials sector gained 2 percent.
Market volume was 439 million shares worth C$8.5 billion. Decliners outpaced advancers 968 to 612. The blue chip S&P/TSX 60 index .TSE60 closed down 14.91 points, or 1.85 percent, at 790.23.
In New York, stocks rallied sharply on easing oil prices and after the Federal Reserve signaled it was not in a hurry to raise interest rates and left its benchmark rate unchanged at 2 percent, as expected.
The Dow Jones industrial average .DJI soared 331.62 points, or 2.94 percent, to close at 11,615.77, and the Nasdaq composite index .IXIC rose 64.27 points, or 2.81 percent, to 2,349.83.
$1=$1.04 Canadian Editing by Rob Wilson