* Volatile session sees TSX up, then down 300 points
* Energy sector leads retreat despite oil rise
* Materials sector gets lift from gold price (Recasts, adds analyst comment, details, updates figures)
TORONTO, Oct 7 (Reuters) - The Toronto Stock Exchange's main index tumbled on Tuesday afternoon in a volatile session, as energy and bank issues weakened on persistent worries about the fallout from the credit crisis.
The TSX index retreated after charging nearly 300 points higher earlier in the day, before it turned negative and slid 300 points lower.
The heavily weighted oil and gas sector, which helped the initial rally, led the way down by 3.4 percent even as crude CLc1 edged higher above $90 a barrel.
"People are still not convinced here that the oil prices won't be heading lower in the face of what we are now viewing as a global recession," said Lex Kerkovius, senior research analyst at McLean & Partners Wealth Management Ltd in Calgary. "People are still very skeptical."
He added there is a "real threat in investors' eyes" that the oil price will move lower given signs of a faltering global economy.
Shortly after 2:25 p.m. (1825 GMT), the S&P/TSX composite index .GSPTSE was down 185.71 points, or 1.82 percent, at 10,044.72, with all but one of its 10 main groups lower.
The materials was the lone sector to push higher, up 2.8 percent, as gold rose above $880 an ounce on safe-haven buying and a weaker U.S. dollar.
The selloff comes after the main index dropped more than 5 percent on Monday as major markets around the world plunged on a gloomy economic outlook.
Earlier on Tuesday, the TSX was cheered by news the U.S. Federal Reserve would create a commercial paper funding facility in a move aimed at soothing volatile financial markets. [ID:nN07447246]
The TSX financials group fell 1 percent with most banks lower as RBC cut share-price targets on five banks [ID:nWNAS3535], as well as on Manulife Financial (MFC.TO). Manulife was off 0.4 percent at C$34.58.
The main bright spot was the gold subindex, which was up 5 percent as bullion rose. Agnico-Eagle Mines Ltd (AEM.TO) gained 8.9 percent to C$52.27, while Goldcorp Inc (G.TO) rose 10.3 percent to C$29.77.
$1=$1.11 Canadian Reporting by Jennifer Kwan and Ka Yan Ng; editing by Rob Wilson