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*Nortel plummets 40 percent after cuts full-year outlook
*Petro-Canada falls after it says oil sands costs to rise
*Gold miners climb as bullion spikes on safe-haven buying
TORONTO, Sept 17 (Reuters) - The Toronto Stock Exchange's main index retreated on Wednesday as investor fears over the health of the U.S. financial system lingered and Nortel Networks Corp NT.TO shares plunged after it cut its revenue forecasts and said it was looking to sell one of its businesses.
Concerns over the U.S. financial system lingered despite a $85 billion U.S. government rescue plan on Tuesday for insurer American International Group (AIG.N) to stave off its bankruptcy. For details, see [ID:nN13574113].
Investors worried the bailout won't be enough to stem the turmoil that has caused a meltdown in global markets. As well, U.S. stocks opened lower as a rise in inter-bank lending rates added to concerns of credit constraints in the global financial system.
"Everybody is still concerned about the financial infrastructure of the United States," said Joe Ismail, technical analyst at Maison Placements Canada.
"Now they've been bailed out there is still concern about how it's all going to unfold."
Late on Wednesday morning, the S&P/TSX composite index .GSPTSE was down 404.51 points, or 3.3 percent, at 11,822.48, with all but one of its 10 main groups lower.
The heavily-weighted financial services sector sank 5.1 percent with Manulife Financial (MFC.TO) down 4.8 percent to C$34.26. On Tuesday, Manulife outlined its exposure to AIG and to failed U.S. investment bank Lehman Brothers Holdings Inc LEH.N. [ID:nN16436192]
Technology shares sank 9.6 percent with Nortel down 42.8 percent at C$3.27 after the company cut its 2008 revenue forecast as its customers curtailed spending amid the economic slowdown, and said it was looking to sell one of its businesses.[ID:nN17491200]
The heavyweight energy sector shed 3.4 percent, even though oil rose above $92 a barrel after the AIG bailout and on heightened concerns about Hurricane Ike's impact on offshore oil rigs in the U.S. Gulf. [ID:nSP358395]
Petro-Canada PCA.TO gave up 4 percent to C$38.06 after the company said capital costs at its Fort Hills oil sands project in Alberta were set to rise by 50 percent amid higher expenses. [ID:nN17503011]
Materials shares added 0.4 percent on bargain-hunting and on gold's rise, which was up as investors sought a safe haven. Agnico-Eagle (AEM.TO) spiked 8.3 percent to C$61.33.
Biovail Corp BVF.TO fell 4.5 percent to C$10.39 after it said it had furthered its plans to shift into central nervous system treatments with the $100 million purchase of privately held drugmaker U.S. Prestwick Pharmaceuticals. [ID:nN17498672] ($1=$1.07 Canadian) (Reporting by Jennifer Kwan; Editing by Peter Galloway)