* TSX falls 42.65 points, or 0.34 percent, to 12,360.98 * Five of 10 main sectors decline * Bombardier gains after Latvian order By John Tilak TORONTO, Dec 20 (Reuters) - Canada's main stock index fell on Thursday, hurt by uncertainty over stalled U.S. budget discussions and a drop in materials shares, triggered by falling gold prices. The materials sector, which includes gold miners, lost 1.6 percent and led the market lower. The group tracked a 1.4 percent decline in gold prices, which were near a four-month low earlier in the session due to year-end investor selling. Investors were cautious amid a stalemate between the White House and Republicans who have been holding talks to avert the "fiscal cliff," steep tax hikes and budget cuts due to kick in early in 2013. "There is a certain degree of consternation. If anything, the fear of the fiscal cliff is keeping the markets from going up," said Michael Sprung, president of Sprung Investment Management. Investors are also concerned about the fragility of the global economy, he said. "The markets are at levels anticipating an improving economy, although not a very robust economy." At midmorning, the Toronto Stock Exchange's S&P/TSX composite index was down 42.65 points, or 0.34 percent, at 12,360.98. Five of the 10 main sectors on the index were trading lower. Miner Barrick Gold Corp fell 2.6 percent to C$32.59 and Goldcorp Inc was down 2.3 percent at C$35.12. Silver Wheaton Corp lost 2.1 percent to C$34.16. Gold stocks will remain volatile and could have a wild ride next year as well, said Sprung. "By late next year, we should see some modest recovery (in the materials sector) as I would expect China could be working inventory down and be back in the market again," he said. Energy shares slipped 0.3 percent, with oil prices falling. Shares of Bombardier Inc gained 3.1 percent to C$3.68 after the Canadian aircraft and train maker said Latvia's airBaltic has placed a firm order for 10 C-Series jets. That helped the industrials sector gain 0.6 percent.