(Adds details, quotes, updates TSX close)
By Leah Schnurr
TORONTO, Jan 17 (Reuters) - The Toronto Stock Exchange's main index plunged again on Thursday, as fears of a U.S. recession prompted a slump in resource and financial issues, leading to a third straight day of hefty losses.
In a freefall that began on Tuesday, the index has racked up losses of more than 900 points, erasing all of 2007's gains and sending it to a 10-month closing low.
The energy and materials sectors were the biggest drag on the index on Thursday, stung by weaker commodity prices and jitters over the impact that a global slowdown could have on the demand for resources.
Data out of the U.S. showing a sharp contraction in regional factory activity, as well as a dark assessment of the economy by Federal Reserve Chairman Ben Bernanke, helped heighten concerns that the United States, Canada's biggest trading partner, could fall into a recession.
Potash Corp of Saskatchewan (POT.TO) was the largest net decliner on the TSX after an analyst questioned a build-up in North American potash inventory in December.
The world's largest fertilizer producer skidded C$13.90, or 10.1 percent, to C$124.00. The materials sector was down 4 percent.
"I'd be hard pressed to think of a time when we've had such a big decline in the TSX for three days in a row," said Elvis Picardo, investment strategist at Northern Securities Inc, in Vancouver.
"What started off as concern about the U.S. economy at the beginning of the year, seems to be turning into a downright market panic."
The S&P/TSX composite index .GSPTSE closed down 279.23 points, or 2.14 percent, at 12,795.63, its lowest close since early March. All of the TSX's 10 main groups were lower.
The index has fallen 12.5 percent from its closing high reached in July, putting it in the zone of a technical correction. Overall, the TSX has shed more than 1,000 points, or 7.5 percent since the beginning of 2008.
In the oil patch, Suncor Energy (SU.TO) lost C$4.20, or 4.4 percent, to C$91.81 and Canadian Natural Resources (CNQ.TO) fell C$3.40, or 5 percent, to C$64.98, as crude slid toward $90 a barrel. The energy sector trimmed 2.8 percent.
The beaten-up financials group, the largest sector on the index, dropped 1.3 percent while south of the border, Merrill Lynch & Co Inc MER.N, the world's largest brokerage, reported about $16 billion in mortgage-related writedowns and adjustments.
Quebecor World Inc IQW.TO was the most active company on Thursday, while the Toronto Stock Exchange said it was reviewing whether its shares should be delisted.
The troubled commercial printer ended up 12 Canadian cents, or 62.2 percent, at 30 Canadian cents, on a volume of 26.2 million shares.
Shares of BCE Inc (BCE.TO) fell 48 Canadian cents, or 1.3 percent, to C$36.53 as investors worried over whether its buyout deal may be repriced, further delayed or abandoned.
Market volume was a heavy 439 million shares worth C$9 billion. Decliners outpaced advancers 1,206 to 452. The blue chip S&P/TSX 60 index .TSE60 closed down 18.52 points, or 2.42 percent, at 747.11.
U.S. stocks also continued to sink amid recession fears. The Dow Jones industrial average .DJI closed down 306.95 points, or 2.46 percent, at 12,159.21, while the Nasdaq composite index .IXIC fell 47.69 points, or 1.99 percent, to 2,346.90.
$1=$1.03 Canadian Editing by Rob Wilson