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* Index sags after central bank holds interest rates
* Resource issues hit as commodity prices fall
By Leah Schnurr
TORONTO, June 10 (Reuters) - The Toronto Stock Exchange's main index tumbled more than 200 points on Tuesday after the Bank of Canada unexpectedly left interest rates unchanged and oil and gold prices weakened.
The central bank's decision to take a break in cutting rates set the tone for the session right from the start, disappointing investors who had largely expected a quarter-point cut.
Tumbling resource shares added to the downturn as commodity prices were clipped by a gaining U.S. dollar.
Levente Mady, a broker at MF Global Canada in Vancouver, said the central bank had sounded dovish on more rate cuts in its last decision to ease rates, which is part of what caught investors so off guard.
"Now, all of a sudden, they turn around ... and say inflation is more of an issue than we thought and perhaps we need to put things on hold before we ease again, so you get whipsawed both ways," Mady said.
The S&P/TSX composite index .GSPTSE closed down 224.56 points, or 1.5 percent, at 14,736.20 with eight of its 10 main sectors lower. It had earlier fallen as much as 300 points, but climbed back as the Dow Jones industrial average .DJI rebounded south of the border.
Comments from U.S. Federal Reserve Chairman Ben Bernanke that signaled the central bank would resist rising inflation buoyed the greenback and pressured commodities prices.
Oil fell $3, following an unprecedented jump of more than $10 at the end of last week, which rattled markets and stoked worries over the impact of high energy prices on consumer spending and on the prospects for the global economy.
In Toronto, the energy and materials groups fell 2.3 percent and 3.6 percent respectively. The subindex of gold producers lost 5.4 percent as bullion was undercut by the stronger U.S. dollar.
The small technology sector added 1.4 percent with help from Nortel Networks NT.TO, which rose 36 Canadian cents, or 4.6 percent, to C$8.27.
Central banks around the world have been lowering interest rates in an attempt to mitigate the effects of the credit crunch and offset the impact of a sluggish U.S. economy.
However, the banks have recently gone on a verbal offensive against rising inflation, including the Fed, which has signaled that further interest rate cuts are unlikely.
Mady said that this did not necessarily mean the worst of the credit squeeze was over.
"Anything that I see and the people that I talk to and the the information that I'm getting just tells me that it's getting worse," he said.
"So, my take on the situation is there's definitely more to come, and there's a lot more to come.
Market volume was 376 million shares worth C$8.4 billion. Decliners outpaced advancers 1,053 to 560. The blue chip S&P/TSX 60 index .TSE60 closed down 14.87 points, or 1.66 percent, at 879.40.
South of the border, markets ended mixed. The Dow inched up 9.44 points, or 0.08 percent, to 12,289.76, lifted by an upgrade of shares of Coca-Cola (KO.N). The Nasdaq composite index .IXIC ended down 10.52 points, or 0.43 percent, at 2,448.94 as techs eased. ($1=$1.02 Canadian) (Editing by Rob Wilson)