October 7, 2008 / 8:57 PM / 10 years ago

UPDATE 3-Toronto stock index drops below 10,000, led by oil

* Oil and gas sector turns negative after initial charge

* Gold miners lone bright spot, subindex up 1.2 percent

* RBC cuts share-price targets on five banks, Manulife

(Updates numbers and adds details and comments)

TORONTO, Oct 7 (Reuters) - The Toronto Stock Exchange’s main index dropped nearly 4 percent on Tuesday to end below the key 10,000 level for the first time in three years as fears that the credit crisis could balloon to a global recession prompted broad selling.

Energy stocks gave up early gains to lead the way downward, despite oil prices that eked higher on the day, a move that some saw as a sign that equity investors believe a global recession that will sap demand for commodities is all but inevitable.

“Certain people have moved to a full blown mental state on what’s going to happen to the global economy, and therefore they think commodity prices may come down further,” said Paul Hand, managing director at RBC Capital Markets.

The TSX energy group fell 6.3 percent during the session, one of nine sectors to end lower. Only one index sector rose, the mining-heavy materials group, which was buoyed by gold prices, which were higher due to their appeal as a safe-haven investment.

Compton Petroleum CMT.TO led energy stocks lower, dropping 17.1 percent to C$3.25, while Petro-Canada PCA.TO retreated 8 percent to C$27.80.

The S&P/TSX composite index .GSPTSE ended down 400.88 points, or 3.9 percent, at 9,829.55, dropping for the fifth straight day and recording its lowest close since July 2005.

Financial stocks tipped 4.4 percent lower, led by weakness among insurers amid concern of more U.S. bank failures and growing credit troubles in Europe.

Also weighing on the sector, RBC Capital Markets cut estimates and price targets on several Canadian companies, citing a deteriorating macroeconomic environment.

Insurance giant Manulife Financial (MFC.TO) fell 5.9 percent to C$32.67, while property and casualty insurer Kingsway Financial KFS.TO fell 14.7 percent to C$5.12.

$1=$1.11 Canadian Reporting by Cameron French; Editing by Peter Galloway

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