*Nortel sinks 29 percent after its cuts 2008 outlook
*Petro-Canada falls after it says capital costs to rise
*Oil shares drop despite bump up in prices
TORONTO, Sept 17 (Reuters) - The Toronto Stock Exchange’s main index fell in early action on Wednesday as fears over the health of the U.S. financial system lingered and Nortel Networks Corp NT.TO shares plunged after it cut its 2008 revenue outlook.
The S&P/TSX composite index .GSPTSE was down 88.13 points, or 0.72 percent, at 12,138.86, with eight of its 10 main groups lower. Shortly after the open, the benchmark index had fallen more than 200 points.
Technology shares sank 5 percent with Nortel down 29 percent at C$4.06 after the company cut its 2008 revenue and gross margin forecasts and said it plans another round of cost-cutting. [ID:nN17491200]
The heavily-weighted financial services sector fell 1.6 percent with Manulife Financial (MFC.TO) 3.4 percent lower at C$34.78 after it disclosed its exposure to insurer American International Group (AIG.N) late on Tuesday.
Concerns over the U.S. financial system lingered despite a U.S. government bailout plan on Tuesday for AIG, with a $85 billion loan from the New York Federal Reserve to stave off bankruptcy. For details, see [ID:nN13574113].
The AIG move comes after the government refused to bail out investment bank Lehman Brothers Holdings Inc LEH.N, which filed for bankruptcy protection.
However, investors worried the bailout wouldn’t be enough to stem turmoil that has caused a meltdown in global markets. U.S. stocks opened lower on Wednesday as a rise in inter-bank lending rates added to concerns of credit constraints in the global financial system.
The heavyweight energy sector shed 0.9 percent despite a bump in oil prices above $93 a barrel, while materials added 0.7 percent.
Petro-Canada PCA.TO gave up 1.3 percent to C$39.15 after the company said capital costs at its Fort Hills oil sands project were set to rise by 50 percent amid higher expenses. [ID:nN17503011] ($1=$1.07 Canadian) (Reporting by Jennifer Kwan; Editing by Peter Galloway)