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* TSX ends down 50.76 points, or 0.40 percent, at 12,650.87 * Morning rally to highest level since Jan. 30 reverses * Banks, other financials lead declines as earnings loom By Alastair Sharp TORONTO, Feb 25 (Reuters) - The prospect of a divided Italian parliament prompted a late retreat in banking and other Canadian financial stocks on Monday, pushing the main Toronto equity index into the red after it had earlier hit a three-week high. Voting projections in Italy show no coalition garnered enough votes to form a government, reviving fears about an extended period of uncertainty in Europe's third-largest economy. "The basic problem is that the whole Europe situation had been shunted to the back-burner ever since the beginning of this year," said Elvis Picardo, strategist at Global Securities in Vancouver. "The latest developments show that there is a degree of risk that is still attached to the continent," he said. "It's causing investors to rethink some of their assumptions about the market." Royal Bank of Canada fell 1 percent to C$63.59, insurer Manulife Financial Corp lost 2.1 percent to C$14.84 and its rival, Sunlife Financial Inc, slipped 1.9 percent to C$28.34. Picardo said investors may also be feeling more cautious about bank earnings, which are due to be reported this week and next, after a recent string of weak domestic housing, employment, inflation and retail sales data. The Toronto Stock Exchange's S&P/TSX composite index ended down 50.76 points, or 0.40 percent, at 12,650.87. It had earlier hit 12,832.71, its highest level since Jan. 30. The tide turned in the last hour of trade, and seven of the 10 sectors ended in negative territory. Energy stocks took a beating, with Suncor Energy Inc falling 1.4 percent to C$31.52 to end the day as the heaviest weight on the index. It had earlier risen, along with fellow oil sands producer Canadian Natural Resources Ltd, after a Barron's article suggesting each stock could gain 25 percent in the next year. Canadian Natural Resources finished up 0.6 percent at C30.55. Gold miners provided some of the only gains, as the price of bullion rose in part on the back of the Italian uncertainty. Barrick Gold, the world's biggest producer, gained 2.2 percent to C$31.81, while four more gold miners rounded out the top five positive influences on the index. Shares in BlackBerry ended flat at C$13.48, giving up early gains after the smartphone maker's chief executive told a German newspaper that sales of its make-or-break BB10 line were going better than expected and that the company had increased production to keep up.