July 15, 2008 / 3:23 PM / 9 years ago

REPEAT-UPDATE 1-Toronto stocks plunge on financial worries

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* TSX falls 2.5 percent percent as banks, oils sag

* Fears for U.S. financial system sparks selloff

* BoC holds rates at 3 percent but flags rising inflation

TORONTO, July 15 (Reuters) - The Toronto Stock Exchange's main index slid 2.5 percent on Tuesday, yanked lower by weak oil and gas shares and tumbling financials, as fears for the health of the U.S. financial system prompted a broad selloff.

The heavyweight financials sector, which was thumped in the previous session, extended its fall by 3.8 percent, as concerns over fallout from the credit crisis and a weakening U.S. economy continued to hammer global markets.

"It's fear over the financial system, rising inflation and slow growth," said Ian Nakamoto, director of research at MacDougall, MacDougall & MacTier.

"When people get nervous it's easier to sell first and ask questions later."

At midmorning, the S&P/TSX composite index .GSPTSE was down 347.74 points at 13,393.55, with all 10 of its main sectors in the red.

The big selloff came as Federal Reserve Chairman Ben Bernanke said a weakening housing market, tighter credit and rising oil prices threaten the U.S. economy, at one point sending U.S. stocks down 2 percent.

The Bank of Canada held interest rates steady at 3 percent on Tuesday, as expected, but said inflation could rise above 4 percent for the first time since 2003 as commodity price increases continue to outpace expectations.

The central bank did not hint at a future rate hike, and said inflation risk was offset by two other major issues -- a protracted U.S. economic slowdown and turbulence in financial markets.

In financials, Toronto-Dominion Bank (TD.TO) fell C$2.37, or 4.3 percent, to C$53.38, while Royal Bank of Canada (RY.TO) slumped C$1.30, or 3.1 percent, to C$39.73.

Oil and gas shares slipped 2.6 percent as the price of crude fell to around $138 a barrel, after being up near $146 earlier in the session. EnCana Corp (ECA.TO) shed C$2.21, or 2.5 percent, to C$84.42.

Materials were down 2.5 percent, with the golds subsector also falling, despite a rise in the price of gold to above $980 an ounce on safe-haven buying. Goldcorp (G.TO) dropped C$1.21, or 2.4 percent, to C$49.99. ($1=$1 Canadian) (Reporting by Jennifer Kwan; editing by Rob Wilson)

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