CANADA STOCKS-TSX drops sharply on banking, Korea fears

Tue May 25, 2010 10:32am EDT
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* TSX falls 1.5 percent to 11,348.02

* Banking and energy issues drop steeply

* Golds advance from relative safety bid

* LIBOR rates at highest since July 2009 (Adds details)

TORONTO, May 25 (Reuters) - Toronto's main stock index dropped on Tuesday morning as worries over Europe's banking sector and North Korea's threatened military action against the South pulled financial and energy shares sharply lower.

Canadian banks, even with limited exposure to European debt, were caught up in a global selloff of bank shares as concerns mounted that the debt crisis could worsen after the Bank of Spain rescued a local lender over the weekend.

Meanwhile, funding conditions for banks have been tightening, with institutions in the United States increasingly reluctant to deal with firms with large exposure to Europe.

Three-month dollar LIBOR rates USD3MFSR= rose to their highest level since late July 2009. [MMT/]

All of the index's banks were sharply lower, led by Royal Bank of Canada (RY.TO: Quote), the country's biggest lender, down 2.1 percent at C$58.21, while No. 2 Toronto-Dominion Bank (TD.TO: Quote) fell 1.75 percent to C$70.25.   Continued...