CANADA STOCKS-TSX hit by oil price slump, China worries

(Adds strategist comment, updates prices to close)

* TSX ends down 377.22 points, or 2.72 percent, at 13,481.90

* All 10 of index’s main groups close lower

* Energy stocks fall 4.6 pct, financials lose 2.8 pct

By Alastair Sharp

TORONTO, Sept 1 (Reuters) - Canada’s main stock index fell 2.7 percent on Tuesday, in a broad retreat led by financial and energy stocks as oil prices slumped, weak Chinese data renewed fears of slowing growth, and Canada officially slipped into recession.

Canada’s energy sector, a major force on the index, dropped 4.6 percent as crude tumbled after a three-day rally.

The financial sector, which accounts for more than 35 percent of the index’s weight, fell 2.8 percent.

Overall, the Toronto Stock Exchange’s S&P/TSX composite index declined 377.22 points, to close at 13,481.90.

Chinese manufacturing activity shrank in August, while the country’s services sector also showed signs of cooling, reinforcing investor fears that the world’s second-largest economy may be heading for a hard landing.

“Initially the narrative was that maybe we’d see a 7 percent growth rate in China, but it looks like it’s going to be much lower than that,” said Elvis Picardo, strategist and vice president of research at Global Securities in Vancouver.

“Some of this fear and panic has to wash out, and that may take another month or two,” he said.

The most influential decliners on the index included Royal Bank of Canada, which sank 2.7 percent to C$71.33, and Bank of Nova Scotia, which gave up 3.3 percent to C$58.24.

All 10 of the index’s main sectors were lower, with 230 issues declining and only 17 advancing, for a 13.5-to-1 ratio on the downside.

Canadian Natural Resources lost 4.4 percent to C$28.36, Encana Corp stumbled 8.3 percent to C$9.01, and Suncor Energy Inc dropped 3.2 percent to C$36.05.

Consumer staples was the only group whose losses were under 1 percent.

“A correction is never easy,” said Michael Sprung, president at Sprung & Co. Investment Counsel. “What we’re seeing is just volatility created by reverberations of people digesting all of this information.”

Sprung said he expects the volatility to continue as China jitters and speculation over when and if the Federal Reserve will raise interest rates remain, noting that September and October also tend to be seasonally weak months.

“Within this environment, it’s opening a lot of opportunities for investors,” said Sprung, adding that investors should be making bids on well-managed companies with good balance sheets.

Canada’s economy shrank in the second quarter, putting the country in recession for the first time since the financial crisis, although growth did pick up in June, suggesting the slowdown may be short-lived.