* TSX falls 135.39 points, or 1.01 percent, to 13,300.56
* Nine of the 10 main sectors retreat (Adds details, comments)
By Solarina Ho
TORONTO, July 26 (Reuters) - Toronto's main stock index closed more than 1 percent lower on Tuesday as lackluster Canadian earnings and a stalemate in U.S. debt talks kept many investors on the sidelines.
U.S. President Barack Obama's Democrats and the Republicans were further apart than ever on Tuesday in the impasse over raising the U.S. debt ceiling as Wall Street braced for a looming U.S. debt default and credit downgrade.
Wall Street banks are preparing for the real possibility that the United States will lose its top credit rating, which they say will cost the country $100 billion in additional interest payments and hurt both consumers and the economy. [ID:nN1E76P002]
Economically sensitive financial stocks, which make up more than a third of the main Toronto index, were down 1.34 percent. Among them, Toronto-Dominion Bank (TD.TO) was off 1.85 percent at C$78.68, while Bank of Nova Scotia (BNS.TO) stumbled 2.10 percent to C$55.91, and Royal Bank of Canada (RY.TO) dropped 1.44 percent to C$55.91.
While many believe a solution to the U.S. debt crisis will be found eventually, questions remain over what kind of deal will be struck.
"At the end of the day, everyone knows that a deal has to be done and a deal will be done. The only question is, which form the deal will take," said Rick Hutcheon, president and chief operating officer at RKH Investments.
The Toronto Stock Exchange's S&P/TSX composite index .GSPTSE finished the session down 135.39 points, or 1.01 percent, at 13,300.56. Nine of the 10 main index groups fell.
Canadian National Railway (CNR.TO) was the biggest drag on the index, falling 4.24 percent to C$72.05 as concerns about a slowdown in economic growth and profit-taking pulled the stock lower. [ID:nN1E76P0RR]
($1=$0.94 Canadian) (Reporting by Solarina Ho; editing by Peter Galloway)