* TSX drops 1.6 pct to 11,094.31; off 2.2 pct for week
* Index down more than 5 percent this month
* Economic data fails to calm "spooked" investors (Adds details)
By Ka Yan Ng
TORONTO, Jan 29 (Reuters) - Toronto's main stock index sank 1.6 percent on Friday to close at its lowest level in three months, pressured by weak commodity prices after stronger than expected U.S. economic data sparked a rally in the greenback.
The heavyweight energy and materials sectors were among two of the big drags on the index, down 1.2 percent and 3.5 percent respectively, as prices for crude oil and gold drove lower. [O/R] [GOL/]
Fertilizer producer Potash Corp (POT.TO) slumped for a second straight session, down 4.8 percent at C$105.92.
Royal Bank of Canada (RY.TO) was the top heavyweight decliner, falling 2.24 percent to C$52.28. The other four big banks were also weaker.
Investors have worried about the financial sector since President Barack Obama moved to introduce tighter regulations on U.S. banks that would limit risk-taking. That could also affect Canadian banking operations south of the border.
"The financials have been weak lately, whether it's Mr. Obama and the U.S. banks and all that foofaraw that's going on down there," said John Kinsey, a portfolio manager at Caldwell Securities.
The Toronto Stock Exchange's S&P/TSX composite index .GSPTSE finished down 179.89 points, or 1.6 percent at 11,094.31. Eight of the index's 10 main groups were lower, with five of them off more than 1 percent each. The index lost 2.2 percent on the week, its third straight weekly decline. It is down about 5.6 percent so far this year.
Unexpectedly strong fourth-quarter economic growth in the United States, and healthy November gains in Canada, failed to lift investors' spirits, which have been deflated by recent policy moves by China and the White House's plan to rein in risk-taking by big banks. [ID:nN28246399] [ID:nN29201456]
Worries over the fiscal health of Greece, and of some smaller euro zone countries, curbed investors' appetite for risk.
"The problem is that, at this point the economic numbers and corporate earnings have taken a back seat to some of the concerns that have manifested themselves in recent weeks," said Elvis Picardo, analyst and strategist at Global Securities in Vancouver.
"Investors are spooked."
Picardo said earnings might still be able to play a bigger role in driving investor sentiment.
Among active issues on Friday, Zarlink Semiconductor ZL.TO gained more than 13 percent to C$1.20 after the computer chip maker reported solid financial results and a forecast that bettered analyst expectations. [ID:nN29211937]
$1=$1.07 Canadian Additional reporting by Claire Sibonney