* TSX drops 164.20 points, or 1.52 percent, to 10,629.47
* Financials biggest decliner, off 2.6 percent
* Mixed data fuels market caution about economic recovery (Adds details, quotes)
By Jennifer Kwan
TORONTO, Aug 11 (Reuters) - Toronto's main stock index sank on Tuesday as mixed economic data and a gloomy outlook for U.S. banks painted by a prominent analyst spurred doubt about recovery and led to profit-taking.
Hardest hit were financial and oil companies, with the index's financial group down 2.6 percent and the energy group dropping 1.7 percent.
Royal Bank of Canada (RY.TO) fell 2.4 percent to C$49.48, while Bank of Nova Scotia (BNS.TO) was down 3.1 percent at C$44.05. Insurer Manulife Financial (MFC.TO), down 1.6 percent, and Sun Life Financial (SLF.TO), down 5.2 percent, also weighed on the sector.
Canadian financials followed U.S. banks lower after comments by veteran banking analyst Richard Bove recommended taking short-term profits in U.S. bank stocks as he said he expects a pullback in share prices. [ID:nBNG503348]
The big energy sector was hit as the price of oil fell on doubts over the pace of economic recovery, in part due to disappointing U.S. wholesale business inventories data. [ID:nSP473359] Suncor Energy (SU.TO) dropped 3 percent to C$34.91, while Canadian Natural Resources (CNQ.TO) was down 2.5 percent at C$62.22.
Mixed economic data from China [ID:nLB659792] and the United States on Tuesday [ID:nN11524774] dented expectations of a recovery, said Paul Taylor, chief investment officer at BMO Harris Investment Management Inc.
Adding to the cautious mood, Canadian housing starts fell unexpectedly in July, dropping 4.1 percent from June and breaking a two-month run of gains. [ID:nN11509601]
"People are still questioning whether the markets may have come too far too fast, and whether the pace of economic recovery will be as strong as people expect in Q3 of 2009," Taylor said.
The S&P/TSX composite index .GSPTSE closed 164.20 points, or 1.52 percent, lower at 10,629.47, with eight of its 10 main groups falling.
The blue chip S&P/TSX 60 index .TSE60 closed 10.93 points lower, or 1.68 percent, at 638.978.
Heading into this week, the TSX composite had logged four straight weekly gains. Tuesday's finish was its second day lower as profit-taking took hold, particularly in financials as the group had nearly doubled since hitting a March low and the overall index had gained more than 40 percent in the same period.
"It's pretty broad selling in the market. Just about every group is down, but it's fairly low volume. It's some profit-taking," said Mario Richard, chief investment strategist at Sceptre Investment Counsel.
"A lot of names have done so well the last few months. People know that the month of September tends to be one of the weakest seasonal months of the year, so we may have some selling ahead of that."
$1=$1.10 Canadian Reporting by Jennifer Kwan