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* TSX tumbles 224.84 points to 8,596.22
* Auto and bank concerns rattle sentiment
* Fall erases most of last week's gain (Adds details, comments and official numbers)
By Frank Pingue
TORONTO, March 30 (Reuters) - Toronto's main stock index closed 3 percent lower on Monday and erased a chunk of last week's gains as troubles in the North American auto sector and the European banking industry rattled investor sentiment.
Canadian banks and insurers headlined the index's latest skid as news of bank rescues in Europe unsettled investors who had bid up financial stocks in recent weeks.
Shares of insurer Manulife Financial (MFC.TO), the biggest drag on the overall index, dropped 8.5 percent to close at C$13.72, while Royal Bank of Canada (RY.TO) followed with a drop of 3.2 percent to C$35.80.
The drop in Canadian bank and insurer stocks followed similar falls by financial shares overseas on news that Spain was forced into its first bank rescue since the global financial crisis began. Britain and Germany also shored up lenders. [nLU302379]
"Somehow I think the bulls got ahead of themselves over the past few weeks where there was a 20 somewhat percent rally without any pullback," said Francis Campeau, broker at MF Global Canada in Montreal.
"And then the GM stories, the bank stories ... just kind of scared a few longs to take some profits."
Another major drag on sentiment was talk of bankruptcy for automakers General Motors (GM.N) and Chrysler CBS.UL by the Obama administration, which rejected the turnaround plans put forward by those companies. [ID:nSP207882]
That was followed by comments from Canada that plans set out by the Canadian branches the two automakers do not go far enough to make them viable. [ID:nN30348498]
The S&P/TSX composite index .GSPTSE unofficially closed down 224.84 points, or 2.55 percent, at 8,596.22, wiping out much of last week's 3.7 percent gain.
$1=$1.26 Canadian Editing by Peter Galloway