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* TSX sags 394.42 points, or 3.30 pct, to 11,560.50.
* Index touches lowest level since August 2010
* All 10 main sectors lower; energy, materials weigh (Updates prices, adds details)
By Trish Nixon
TORONTO, Sept 22 (Reuters) - Toronto's main stock index fell more than 3 percent on Thursday morning, hitting its lowest point in more than a year, as worried investors fled equity markets after the U.S. Federal Reserve shook global confidence with a bleak economic outlook.
Wall Street fell more than 3 percent and European stocks were down more than 4 percent to a two-year low as risk aversion gripped global markets.
"It doesn't matter what sector you look at, you're looking at substantial drops in value here today. And I guess, given the world situation, we probably knew something like this was coming," said Fred Ketchen, director of equity trading at ScotiaMcLeod.
"There's fear, there's worry, there's talk about lack of growth. It'll get overdone. We always do it. We overdo it on the upside and overdo it on the downside," he said.
At 10:35 a.m. (1435 GMT), the Toronto Stock Exchange's S&P/TSX composite index .GSPTSE was down 394.42 points, or 3.30 percent, at 11,560.50. Earlier, it sank as low as 11,476.51, its weakest point since August 2010. All 10 main index sectors were lower.
A grim outlook for the U.S. economy from the Federal Reserve on Wednesday and signs of a slowdown in China and Germany sent world equity markets tumbling and drove investors into safer currencies and government bonds.
The U.S. dollar rose to a seven-month high against major currencies as risk aversion swept through markets. [MKTS/GLOB]
The TSX's materials and energy groups each dropped nearly 5 percent, as the gloomy outlook and the strong U.S. dollar pummeled commodity prices. The Reuters-Jefferies CRB index of commodities [.CRB] was set for its biggest one-day slide since the "flash crash" in raw materials prices in early May this year.
Suncor Energy (SU.TO) was the heaviest drag on the index, down 6 percent at C$26.43, while Barrick Gold (ABX.TO) fell C$5.1 percent to C$50.81, and Potash Corp (POT.TO) lost 3.7 percent to C$48.53.
The financials group fell 2.6 percent, led by Toronto-Dominion Bank (TD.TO), down 3 percent at C$69.99. Royal Bank of Canada (RY.TO) was off 2.6 percent at C$45.36 and Manulife Financial (MFC.TO) tumbled 5.5 percent to C$11.26.
The Fed set the ball rolling on Wednesday when it launched "Operation Twist", a plan to lower long-term borrowing costs by selling or not renewing short-term debt in favor of longer bonds.
The move was expected, but the Fed's statement of the rationale behind it was stark, saying there were "significant downside risks" facing the U.S. economy.
($1=$1.03 Canadian) (Reporting by Andrea Hopkins; editing by Peter Galloway and Rob Wilson)