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By Leah Schnurr
TORONTO, March 19 (Reuters) - A sharp drop by resource issues hammered the Toronto Stock Exchange's main index on Wednesday as commodity prices dropped on concerns that demand could be weakened by the U.S. economic slowdown.
In the worst day for the TSX in almost two months, the benchmark index plunged more than 400 points. Resource companies took the biggest hit as oil and gold prices, which have enjoyed a string of record highs over recent months, fell sharply.
Among resource stocks, Suncor Energy (SU.TO) was down C$6.25, or 6.1 percent, at C$96.67, while Inmet Mining IMN.TO gave up C$5.89, or 7.3 percent, to C$74.61. Potash Corp of Saskatchewan (POT.TO) was the biggest net decliner by weight, shedding C$12.32, or 7.7 percent, to C$147.05.
Lex Kerkovius, senior research analyst at McLean & Partners Wealth Management Ltd. in Calgary, said the optimism that the TSX saw on Tuesday over the U.S. Federal Reserve's 75 basis point rate cut had evaporated as it was less than the full percentage point that some investors had expected.
"Today (investors) decided that it wasn't enough, and without that being enough, they figured that that means demand for metals and materials isn't going to be quite so strong," said Kerkovius. "So, today (there's) a big selloff in the commodity complex and down go the markets."
The S&P/TSX composite index .GSPTSE closed down 427.32 points, or 3.25 percent, at 12,709.38 with all 10 of its main sectors falling. It was the largest one-day decline since a plunge of more than 600 points in mid-January.
The materials sector posted the biggest loss, giving up 6.1 percent, while its subindexes of gold producers and base metals miners sagged 5 percent and 6.2 percent respectively.
Gold prices in particular were slammed as investors moved out of the safe haven, sending the price of bullion down to $944.20 an ounce. Other metals followed gold's lead, while crude oil prices sagged $4.94 to $104.48 a barrel.
The TSX oil and gas sector fell 4.6 percent, with Canadian Natural Resources (CNQ.TO) falling C$4.36, or 6.1 percent, to C$66.67.
The banking sector, which managed to buck the downward trend for most of the day, got caught up in the retreat late in the afternoon, ending down 0.7 percent. Royal Bank of Canada (RY.TO) fell 97 Canadian cents, or 2.1 percent, to C$45.56, but Bank of Montreal (BMO.TO) was able to stay above water, gaining 21 Canadian cents, or 0.5 percent, to C$42.10.
It was the fifth session in a row that the composite index posted a loss or a gain in the triple-digit range. It has continued to swing wildly amid continuing fallout in credit and financial markets stemming from foreclosures in the U.S. subprime mortgage market.
"The real problem is the market from one day to the next clearly can't make up its mind what it wants to do, and it really has, on a collective basis, almost no idea what it's thinking," said Kerkovius.
Elsewhere, toy maker Mega Brands MB.TO slumped 62 Canadian cents, or 15.7 percent, to a record low of C$3.32 after the company said it will take a fourth-quarter charge of $30 million, mostly due to recent product recalls.
Shares of Lundin Mining (LUN.TO) were off 78 Canadian cents, or 10.5 percent, to C$6.63 after it posted a fourth-quarter loss amid a large impairment charge related to recent acquisitions.
Market volume was a heavy 454 million shares worth C$9.1 billion. Decliners outpaced advancers 1,127 to 471. The blue chip S&P/TSX 60 index .TSE60 closed down 26.93 points, or 3.48 percent, at 746.46.
On Wall Street, stocks were also yanked lower by stumbling oil and gold prices. The Dow Jones industrial average .DJI ended down 293.00 points, or 2.36 percent, at 12,099.66, and the Nasdaq composite index .IXIC lost 58.30 points, or 2.57 percent, to 2,209.96
$1=$1.01 Canadian Editing by Rob Wilson