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*Bank of Canada leaves interest rate steady
*Inflation concern may mean rate-cut cycle over
*Materials producers lead TSX fall
*Fed's inflation warning hits global markets
By Jonathan Spicer
TORONTO, June 10 (Reuters) - The Toronto Stock Exchange's main index was undercut on Tuesday after the Bank of Canada left interest rates steady, surprising a market that was expecting to benefit from at least one more cut.
The central bank said inflationary pressure caused it to leave its key overnight rate at 3 percent. The move helped slice 0.75 percent off the Canadian benchmark stock index, which had risen to record highs throughout the latest cycle of monetary relief. For details, see: [nN10336555]
Potash Corp of Saskatchewan (POT.TO) was the biggest decliner, off 1.7 percent, while the wider materials sector skidded 1.6 percent.
The unexpected move puts Canada in step with global stocks, which were on the defensive on Tuesday after the U.S. central bank warned it too would work to hold down long-term inflation expectations -- remarks taken to mean U.S. interest rates may rise later this year.
"There's been a lot of pressure on Canada to get closer in line with the United States," said Peter Chandler, senior vice-president at Canaccord Capital in Waterloo, Ontario.
"The next short-term direction on interest rates could be higher, and in that environment there's more competition for stocks."
The S&P/TSX composite index .GSPTSE was down 112.06 points at 14,848.70, with all of its main sectors in the red. Shortly after the open, it was off more than 180 points.
With crude oil above $137 a barrel, investors scrambled to account for the effects high fuel costs will have on consumers and corporations.
The TSX energy sector, which usually benefits when oil rises, fell 0.5 percent with oil and gas producer EnCana (ECA.TO) off 92 Canadian cents at C$94.83.
Gold producers also fell, down 2.1 percent, as a firm U.S. dollar put pressure on spot gold prices. Barrick Gold (ABX.TO), the world's biggest producer of bullion, dropped 81 Canadian cents to C$42.10.
The decline was broad on the TSX. Research In Motion RIM.TO, the company that makes the BlackBerry, fell 72 Canadian cents at C$136.00 a day after rival Apple (AAPL.O) unveiled its new iPhone. For details, see: [nN09264043]
The index has edged lower the last two trading days.
$1=$1.02 Canadian Reporting by Jonathan Spicer; Editing by Frank McGurty