July 15, 2008 / 9:40 PM / in 9 years

UDPATE 3-Toronto stocks hammered by oils, economic worries

(Adds details)

* TSX plunges more than 2 percent

* Resources hurt by weak oil, worries over demand

* Banks plagued by economic and credit crunch fears

By Leah Schnurr

TORONTO, July 15 (Reuters) - The Toronto Stock Exchange’s main index plunged more than 380 points on Tuesday as resource issues were hit by weak oil prices, while worries over the global economy battered the wider market.

After logging a hefty intraday drop of more than 3 percent, the benchmark briefly halved its losses in the late afternoon, before retreating again to close at its lowest level in nearly two weeks.

The price of oil sank more than $6 to $138.74 a barrel as growing anxiety about the U.S. economy’s health raised questions about world economic growth and demand for crude.

The sharp fall hit Bay Street’s heavyweight energy sector, which lost 4.2 percent, with Canadian Natural Resources (CNQ.TO) down 5.5 percent.

Worries about demand for commodities also hurt the resource-heavy TSX’s miners and fertilizer companies, which were all among the biggest laggards by weight.

The S&P/TSX composite index .GSPTSE closed down 383.73 points, or 2.79 percent, at 13,357.56 with all but one of its 10 main sectors in a downturn. The index fell as far as 13,256.16, or 3.5 percent, in the morning, its largest intraday drop since the massive selloff at the end of January.

The outlook for the economy was in the forefront, after the Bank of Canada held interest rates steady at 3 percent on Tuesday but ratcheted up talk on inflation, saying it could spike above 4 percent next year for the first time since 2003.

Meanwhile, U.S. Federal Reserve Chairman Ben Bernanke said that U.S. financial markets were weighed down by the housing slump, and that the outlook for economic growth and inflation was unusually uncertain.

Kate Warne, Canadian market strategist at Edward Jones in St. Louis, Missouri, said that the central bank messages were consistent with each other.

“In both cases, what they were saying was we’re worried about how weak growth is, but we’re also worried about the implications for inflation and how much inflation will pick up, at least in the short term,” Warne said.

The materials sector gave up 3.1 percent, with Potash Corp of Saskatchewan (POT.TO) down C$4.99, or 2.2 percent, at C$225.01. Agnico-Eagle Mines (AEM.TO) lost C$2.97, or 3.8 percent, to C$75.82.

In the oil patch, Canadian Natural Resources (CNQ.TO) was down C$5.29 at C$91.55, Imperial Oil (IMO.TO) was down C$2.35, or 4.4 percent, at C$50.93, and Suncor Energy (SU.TO) fell C$3.70, or 6 percent, to C$57.92.

Banking shares fell 2.3 percent as worries about more fallout from the U.S. financial crisis continued to rattle the sector, while Toronto-Dominion Bank (TD.TO) and Royal Bank of Canada (RY.TO) hit new year lows. TD closed down C$2.23, or 4 percent, at C$53.51, and Royal fell 85 Canadian cents, or 2.1 percent, to C$40.18.

Market volume was a hefty 474 million shares worth C$10.3 billion. Decliners outpaced advancers 1,222 to 380. The blue chip S&P/TSX 60 index .TSE60 closed down 23.96 points, or 2.9 percent, at 797.33.

In New York, the Dow Jones industrial average .DJI closed below 11,000 for the first time in two years amid doubts over the U.S. plan to rescue mortgage finance giants Freddie Mac FRE.N and Fannie Mae FNM.N.

The Dow fell 92.65 points, or 0.84 percent, to 10,962.54, while the Nasdaq composite index .IXIC managed to inch up 2.84 points, or 0.13 percent, to 2,215.71. ($1=$1 Canadian)

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