June 10, 2008 / 7:11 PM / 11 years ago

UPDATE 3-Rate decision, resources send Toronto stocks lower

(Updates to mid-afternoon)

* Index extends declines to nearly 2 percent

* Resources fall amid selloff in commodities

* Bank of Canada unexpectedly holds interest rates steady

TORONTO, June 10 (Reuters) - The Toronto Stock Exchange’s main index stumbled further on Tuesday, shedding close to 2 percent as resources followed commodity prices lower and undermined by a surprise decision by the Bank of Canada to hold interest rates steady.

Comments from the U.S. Federal Reserve that it would resist rising inflation caused the greenback to strengthen and led to sharp declines in commodity prices.

The energy and materials groups led the way down, giving up 2.8 percent and 4 percent respectively.

A more than $3 retreat in the price of oil stung the heavyweight energy sector, as Canadian Natural Resources (CNQ.TO) fell C$2.83, or 2.7 percent, to C$102.68, and Suncor Energy (SU.TO) lost C$2.94, or 4.2 percent, to C$67.06.

Lower bullion prices weighed on the materials sector, as gold producers slipped. Goldcorp (G.TO) was down C$2.85, or 6.7 percent, at C$39.66 and Barrick Gold (ABX.TO) was off C$3.06, or 7.1 percent, at C$39.86.

The S&P/TSX composite index .GSPTSE was down 274.00 points, or 1.83 percent, at 14,686.76 with seven of its 10 main sectors lower. It had earlier hit a session low of 14,660.61.

Fertilizer companies Potash Corp of Saskatchewan POT.TO and Agrium AGU.TO also dragged the materials space lower. Potash lost C$3.27, or 1.4 percent, to C$223.47, and Agrium was off C$2.86, or 3 percent, to C$93.73.

The Bank of Canada set the tone early after it said it would keep its key overnight rate at 3 percent, citing the threat of higher inflation.

The market had widely expected a quarter-point cut. Meanwhile, central banks around the world, including the Fed and the European Central Bank, also signaled they were concerned about inflation amid soaring food and energy costs. ($1=$1.02 Canadian) (Reporting by Leah Schnurr; editing by Rob Wilson)

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