(Updates to early afternoon)
*Index sags as Bank of Canada leaves interest rates alone
*Resources fall along with commodity prices
TORONTO, June 10 (Reuters) - The Toronto Stock Exchange's main index sagged on Tuesday afternoon, pressured by an unexpected decision by the Bank of Canada to hold interest rates steady, as well as by falling commodity prices.
Market watchers had largely been expecting a quarter-point rate cut, but the central bank kept its key interest rate at 3 percent and pointed to the threat of higher inflation.
"If you read the notes, (Bank of Canada Governor Mark Carney) is weighing the risks toward inflation as opposed to the growth side of the issue," said Paul Harris, portfolio manager at Avenue Investment Management.
The index was also hurt as shares of resource companies extended their decline as oil prices retreated and gold tumbled.
The S&P/TSX composite index .GSPTSE was down 142.12 points, or 0.95 percent, at 14,818.64 with six of its 10 main sectors falling. The benchmark briefly dropped as low as 14,749.40.
The materials and energy groups led the way down, shedding 2.8 percent and 1.4 percent respectively.
Heavyweight Potash Corp of Saskatchewan (POT.TO) also weighed on resource shares, falling C$1.34, or 0.6 percent, to C$225.40.
On the upside, the small tech sector put on 1.9 percent, helped by a gain of 47 Canadian cents, or 5.9 percent, to C$8.38 from Nortel Networks NT.TO.
Interest rate concerns also plagued stocks south of the border and added to Toronto's negative stance after U.S. Federal Reserve Chairman Ben Bernanke said that the central bank would resist rising inflation. The European Central Bank has also signaled that a rate hike could be likely.
"I think the market's adjusting to the fact that all central banks around the world aren't going to cut rates any more," Harris said. ($1=$1.02 Canadian) (Reporting by Leah Schnurr; Editing by Peter Galloway)