UPDATE 1-Toronto stock index drops 3 pct as oil falls

Wed Oct 22, 2008 10:18am EDT
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* Energy issues fall as oil drops below $70 a barrel

* Investors digest corporate results from Husky, CN Rail

TORONTO Oct 22 (Reuters) - The Toronto Stock Exchange's main index fell sharply on Wednesday morning as oil prices eased to near 16-month lows and put pressure on energy issues.

Shortly after 9:50 a.m. (1340 GMT), the S&P/TSX composite index .GSPTSE was down 307.53 points, or 3.14 percent, at 9,488.27, with all 10 main groups lower.

Oil fell below $70 a barrel on concern that demand drops from economies in recession could mute the impact of any supply cuts OPEC might agree to at a meeting this week. Evidence of mounting global supplies is expected to emerge when the U.S. government publishes weekly statistics on oil inventories on Wednesday. [ID:nT335978]

The oil and gas sector declined 6.24 percent, while the mining-heavy materials group was also one of the major decliners, down 5.1 percent. Both groups have suffered heavy losses in recent weeks as commodity prices have slid due to recession fears.

Earnings on both sides of the border are also in focus, said Peter Chandler, senior vice-president at Canaccord Capital in Waterloo, Ontario.

"You're getting lower earnings over comparable quarters from most companies, which is obviously validation for lower stock prices," he said.

"Perhaps of greater issue is that a lot of companies are providing guidance going forward that they expect a more challenging business environment for whatever their businesses are."

Husky Energy HSE.TO said after the bell on Tuesday that its profit jumped 65 percent as oil prices hit a record before the global financial meltdown prompted a major pullback. It also did not give hints of spending plans for next year but did not claw back this year's spending. [ID:nN21528561]

Canadian National Railway CNR.TO said profit rose in the third quarter, and declined to make a specific forecast for its financial performance in 2009 due to economic uncertainty. But the company said it still expects it will be able increase base pricing in the 4 percent to 5 percent range, as in 2008. [ID:nN21314467] ($1=$1.25 Canadian) (Reporting by Ka Yan Ng and Jennifer Kwan; Editing by Peter Galloway)