* TSX falls 96.16 points, or 0.75 percent, to 12,714.05 * Eight of 10 main index sectors decline * Materials group down 3.2 percent as commodity prices slip By John Tilak TORONTO, Feb 20 (Reuters) - Canada's main stock index dropped sharply on Wednesday with weak commodity prices pulling resource shares lower on worries that minutes from last month's U.S. Federal Reserve meeting signaled the Fed may stop or slow its stimulative bond-buying program. The index's losses were exacerbated by rumors that a troubled hedge fund had been forced to liquidate positions, triggering a commodities selloff. Also jarring stock markets on Wednesday was mixed U.S. housing data. Figures showed groundbreakings for U.S. homes fell in January but new permits for construction rose to a 4-1/2-year high, reinforcing expectations the housing market will support economic growth this year. The minutes from the Federal Open Market Committee meeting said that some officials voiced concern over the costs of further asset purchases, although the tone was balanced somewhat by a warning of the dangers of ending the bond-buying program prematurely. "Some of the hawkish comments out of the Federal Reserve minutes are putting some pressure on the TSX, in particular the gold sector," said Youssef Zohny, a portfolio manager at Stenner Investment Partners, a unit of Richardson GMP. "The market has seen a decent rally over the past couple of months, and a modest correction is probably overdue," he added. Strategists have said the Canadian stock market could be set for a near-term pullback after a rally that took it to 18-month highs, with resource shares especially vulnerable. The Toronto Stock Exchange's S&P/TSX composite index unofficially closed down 96.16 points, or 0.75 percent, at 12,714.05. Eight of the 10 main sectors on the index were in the red. The materials sector, which includes mining stocks, fell 3.2 percent. Gold tumbled 2.7 percent, recording its biggest one-day drop in nearly a year, after the Fed minutes became public. Silver prices also dived. "The question is whether they (commodity prices) are going to bottom and start moving up," said Ian Nakamoto, director of research at MacDougall, MacDougall & MacTier. He expects them to rise in the second half of this year. The biggest decliners on the index were miners. Silver Wheaton Corp dropped 6.5 percent to C$32.77. Barrick Gold Corp fell 3.3 percent to C$30.81, and Goldcorp Inc fell 3.2 percent to C$32.96. The energy sector fell 0.7 percent amid the commodity selloff. Financials, the index's weightiest sector, were up 0.1 percent. Bank of Nova Scotia gained 1.5 percent to C$60.01, and Toronto-Dominion Bank rose 0.5 percent to C$84.28.