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*Toronto stocks rebound after touching bear territory
*U.S. financial woes, oil continue to weigh
(Updates numbers, adds details, comments)
By Natasha Elkington
TORONTO, Sept 16 (Reuters) - The Toronto Stock Exchange's main index finished down slightly on Tuesday after hitting the lowest level in almost two years early in the day as investors fretted over the fate of beleaguered U.S. insurer American International Group (AIG.N) and the price of oil plunged to a seven-month low.
In a volatile session that threatened to build on Monday's 4 percent plunge, the S&P/TSX composite index briefly dove into bear market territory, before a staging a rebound late in the day on the back of strengthening resources.
Uncertainty over AIG's ability to continue to fund its operations weighed on the market. The upheaval that has beset the U.S. financial sector also sent investors fleeing from oil, sending the commodity to less than $92 per barrel.
"You really have the market incredibly nervous, incredibly skittish from being moved almost moment to moment on more rumor than any substantive news," said Peter Chandler, senior vice-president at Canaccord Capital in Waterloo, Ontario.
The S&P/TSX composite index .GSPTSE closed down 27.04 points, or 0.22 percent, at 12,226.99 after earlier touching a low of 11,903.09.
All but two of the 10 main subgroups ended in the red, including the key energy and financial groups, which lost 0.46 percent and 2.01 percent, respectively.
The resource-heavy materials group added 2.78 percent.
Potash Corp (POT.TO) jumped C$11, or 6.7 percent, to end at C$174.83.
$1=$1.07 Canadian Reporting by Natasha Elkington; Editing by Peter Galloway