* TSX down 435.90 points, or 3.4 percent, at 12,380.13.
* Main index hits lowest level since Oct. 4
* Biggest one-day drop since June 22, 2009
* All sectors drop on economic woes, materials lead (Adds analyst comment, details)
By Trish Nixon
TORONTO, Aug 4 (Reuters) - Toronto's main stock index suffered its biggest one-day loss in more than two years on Thursday, as growing anxiety about the global economic outlook prompted a wave of selling that slammed world markets.
Investors around the world dumped stocks to rush to the security of cash and government bonds, hammering equity indexes to their lowest levels of the year on fears of a spreading debt crisis and slowing growth. [MKTS/GLOB]
"It seems like major panic," said Kate Warne, Canadian market strategist at Edward Jones in St. Louis, Missouri. "I think a lot of today's reaction is due to fear rather than due to fundamentals."
The intense selling reflected a frustration with politicians' handling of debt crises in Europe and the United States just large industrial economies show signs of running aground.
The Toronto Stock Exchange's S&P/TSX composite index .GSPTSE closed the session down 435.90 points, or 3.4 percent, at 12,380.13. This marked its biggest one-day slide since it fell more than 4 percent on June 22, 2009.
It touched a session low of 12,322.06, its weakest point since October 4, 2010. The intraday decline of more than 3.8 percent was deeper than the so called "flash crash" of May, 2010.
"The market's out of its mind here, and we're into some form of crazy panic selling," said Barry Schwartz, portfolio manager at Baskin Financial Services.
The sell-off was widespread, with all 10 of the TSX's main groups lower. The heavyweight materials, energy and financial sectors led the decline.
Materials stocks, which include miners, fell 5.2 percent as copper prices hit a one-month low and gold prices recoiled from record highs. [MET/L][GOL/]
The TSX's energy group lost 4.1 percent as U.S. crude fell more than $5, stung by a rise in U.S. petroleum inventories and worries about soft demand. [O/R].
The financial sector was 1.6 percent lower despite healthy earnings reports.
"Investors today are just paying no attention to the things that are good news," added Warne.
Insurers Sun Life Financial (SLF.TO) and Great-West Lifeco (GWO.TO) were both down more than 1.5 percent despite reporting better-than-expected second-quarter profits on Wednesday.
IGM Financial IGM.TO reported a higher quarterly profit on Thursday, but fell 1.5 percent to C$46.90.
The biggest drag on the index was Valeant Pharmaceuticals (VRX.TO), which plunged 20.2 percent to C$40.22. The Canadian company said on Thursday that new generic rivals cut into sales for one of its top drugs, news which overshadowed a sharp rise in quarterly earnings. [ID:nN1E773076]
Suncor Energy (SU.TO), down 4.4 percent at C$33.12, and Potash Corp (POT.TO), off 4.72 percent at C$52.47, were also among the heaviest weights.
The index's biggest percentage decliner was debt-laden Yellow Media Inc YLO.TO. Shares of the telephone directory publisher plunged 43.3 percent to C$1.10 after the company slashed its annual dividend by 77 percent and withdrew its full year outlook. [ID:nL3E7J4381]
Positive corporate earnings results from some of Canada's largest companies did little to stem the losses.
Canadian Natural Resources Ltd (CNQ.TO) reported a 43 percent rise in second-quarter profit and said it is poised to restart its oil sands plant seven months after it went up in flames. Shares of the country's biggest independent oil explorer fell 1.7 percent to C$36.19. [ID:nL3E7J42J2]
Top Canadian telecom company BCE Inc's (BCE.TO) quarterly adjusted earnings beat expectations, helped by strength in its new media unit. It's stock was down 1.6 percent at C$36.13. [ID:nN1E77306G]
Canada's two biggest airlines also reported stronger-than-expected results, but their stocks fell with the broader market sell-off. Air Canada ACb.TO lost 4.7 percent to C$2.01, while WestJet Airlines (WJA.TO) slid 2.7 percent to C$13.85. [ID:nN1E7730P4]
On Friday investors will be watching for the July U.S. and Canadian jobs numbers, which could help turn market sentiment. [ID:nN1E77115Y] [ID:nN1E7721H3]
"Hopefully, job reports tomorrow will show some stabilization and the market will regain its sanity, because it's completely lost it," said Schwartz. ($1=$0.97 Canadian) (With additional reporting by Claire Sibonney; Editing by Jeffrey Hodgson)