*TSX drops 5.5 percent
*Panic selling, drop in commodities drive rout
*Market bellwethers are among biggest decliners (Adds details)
By Wojtek Dabrowski
TORONTO, Nov 12 (Reuters) - The benchmark index of the Toronto Stock Exchange dropped more than 5 percent on Wednesday as weakness in commodity prices and nagging economic worries spurred another round of panic selling.
The session saw nine of the 10 subgroups of the S&P/TSX composite index .GSPTSE give up ground. The key energy and materials sectors dropped 7.5 percent and 9.9 percent, respectively. Financials fell 4.4 percent.
"A section of the market -- and myself included -- thought that perhaps we saw panic peak in October," said Elvis Picardo, analyst and strategist at Global Securities in Vancouver. "No such luck."
The biggest losers included bellwether names like Potash Corp (POT.TO), EnCana Corp (ECA.TO) and Canadian Pacific Railway (CP.TO) as investors appeared to dump equities wholesale in hopes of escaping the market meltdown.
"These (stocks) are barometers of market sentiment so when something like this happens, investors basically get even more panicky," Picardo said.
Potash Corp fell 11.2 percent to close at C$86.25, EnCana gave up 6.2 percent to end at C$53.44, and Canadian Pacific fell 8 percent to C$45.71.
The rout was even more pronounced because commodity prices fell once again. U.S. gold futures ended 2 percent lower as investors shunned the bullion market as the dollar rose in a flight to safety. Oil shed 5 percent as the U.S. government chopped its global demand growth forecast, again because of economic worries.
The S&P/TSX composite index .GSPTSE fell 501.43 points, or 5.3 percent, to close at 8,922.57, near the session low of 8,861.83.
The relatively unimportant health care subgroup was the day's sole advancer, eking out a gain of 0.21 percent.
"I think what it's reflective of is just the panic that's out there," said Michael Sprung, president at Sprung & Co. Investment Counsel.
He also said the deadline for 2008 hedge fund redemptions is nearing, "so if people are going to bail, they're bailing now."
Hedge funds and mutual funds alike have had to sell assets to satisfy investors who want their money back. This forced selling has produced further market drops, in turn prompting more investors to pull out of funds.
In the United States, the Dow Jones industrial average .DJI fell 4.7 percent to close at 8,282.66 as uncertainty swirled about how the government plans to revive the credit market. The tech-heavy Nasdaq fell 5.17 percent to end at 1,499.21.
$1=$1.23 Canadian Reporting by Wojtek Dabrowski; editing by Peter Galloway