*TSX index extends losses as resource issues fall
*Bargain-hunting in financials cushions the blow
*TransCanada shares drop as pipeline expansion announced
TORONTO, July 16 (Reuters) - Toronto Stock Exchange's main index was lower at midmorning on Wednesday as resource shares dropped on weaker prices for oil and other commodities.
Oil and gas shares dropped more than 3 percent as oil fell to around $133 a barrel after a U.S. government report showed a surprise leap in crude supplies.
The resource-laden materials subgroup was down 2.5 percent as gold dropped below $970 an ounce.
The S&P/TSX composite index .GSPTSE was down 147.48 points, or 1.1 percent, at 13,210.08 in see-saw trading, with four of its main subgroups lower. On Tuesday the market plunged almost 400 points on anxiety about the health of the U.S. financial sector and falling oil prices.
"That really woke the market up and the TSX really took it on the chin," said Steve Ibel, institutional equities trader at Beacon Securities, in Halifax, Nova Scotia.
"It's not just the regular investor but it's also the portfolio manager maybe getting a little gun-shy. It's really difficult to pick a bottom in this market."
Bargain-hunting in recently battered financials helped cushion the benchmark's fall on Wednesday. Financial shares were up 1.6 percent.
In the oil patch, Husky Energy (HSE.TO) fell C$1.37, or 3.2 percent, to C$41.80, while Talisman Energy TLM.TO fell 71 Canadian cents, or 3.7 percent, to C$18.66. In materials, Goldcorp (G.TO) fell C$1.42, or 2.1 percent, to C$46.56.
Shares of TransCanada Corp (TRP.TO) were down 8 Canadian cents, or 0.24 percent, at C$37.75 after the company and partner ConocoPhillips (COP.N) said they will expand their Keystone crude oil pipeline system from Western Canada to the U.S. Gulf Coast and add 500,000 barrels per day capacity in 2012.
$1=$1.00 Canadian Reporting by Jennifer Kwan; Editing by Peter Galloway