June 3, 2009 / 9:10 PM / 10 years ago

CANADA STOCKS-TSX dives as oil's drop fuels profit-taking

* Falls nearly 300 points to 10,290.12

* Energy shares blamed for bulk of slide

* Index erases all of week’s early gains (Adds details)

By Frank Pingue

TORONTO, June 3 (Reuters) - Toronto’s main stock index closed sharply lower on Wednesday as a drop in oil prices rattled its weighty energy sector and opened the door to profit-taking following the market’s big climb since March.

The energy sector tumbled 4.8 percent, the biggest drop among all of the TSX’s sectors, in tandem with a retreat by oil prices from a seven-month high.

Shares of Canadian Natural Resources (CNQ.TO), the biggest drag on the index, dropped 6 percent to C$62.50, followed by EnCana Corp (ECA.TO), which shed 4.3 percent to C$59.98.

The S&P/TSX composite index .GSPTSE closed down 298.67 points, or 2.82 percent, at 10,290.12. Nine of its 10 sectors ended lower, with the consumer discretionary group the only one to eke out a gain.

The index remains up comfortably from the five-year low hit in early March, but the latest selloff has wiped out all of the meaty gains it recorded earlier this week.

“The market had been very much oversold from that March date and there was a lot of cash on the sidelines ... so in consequence the market went from being very oversold to very overbought and this is a reaction to that,” said Irwin Michael, portfolio manager at ABC Funds.

“I’d like to think we are still on track for higher prices. However, in the short run, the market needed a bit of a breather. Nothing goes straight up or straight down, and I think this is a very healthy pause that investors are taking.”

Canadian bank shares relinquished some of the gains recorded since last week when most of them reported quarterly results that were better than expected.

Royal Bank of Canada (RY.TO) shares, dropped 1.9 percent to C$44.01, while Bank of Nova Scotia (BNS.TO) shares slipped 2.8 percent to C$38.70. The TSX index’s financial group, which makes up about 33 percent of the broader index, fell 2.3 percent.

$1=$1.11 Canadian Editing by Peter Galloway

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