* TSX drops 118.07 points, or 0.98 pct, to 11,911.89
* Nine of 10 main index sectors lower
* Investors retreat from equities and commodities (Adds comments and European context)
By Ashleigh Patterson
TORONTO, Oct 13 (Reuters) - Toronto's main stock index closed nearly 1 percent lower on Thursday as cooling demand in China and weak U.S. earnings spurred a retreat after two days of strong gains.
Financial shares in particular took a beating after disappointing earnings from U.S. No. 2 bank JPMorgan Chase & Co JPM.N.
The bank's quarterly profit dropped 25 percent, underscoring how global market turmoil and euro zone debt worries have hit investment bank revenues. On Wall Street, the earnings sent the Dow Jones industrial average and the S&P 500 index lower after three days of strong gains.[ID:nN1E7951DK]
In Toronto, Bank of Nova Scotia BNS.TO was off 1.92 percent at C$52.18. Royal Bank of Canada RY.TO slid 2.07 percent to C$47.82, while Manulife Financial MFC.TO sank 3.04 percent to C$12.46.
"We seemed to be off somewhat because of the negative reaction to JP Morgan bank earnings south of the border," said Gavin Graham, president of Graham Investment Strategy, adding the lack of confidence prompted risk aversion in Canadian financials.
"If we're seeing those bad numbers in U.S. banks, even though Canadian banks are in a healthier position, we still saw most of our banks off 1.5 percent."
The Toronto Stock Exchange's S&P/TSX composite index closed down 118.07 points, or 0.98 percent, at 11,911.89 .GSPTSE. Nine of the index's 10 main sectors were down. The information technology sector had a slight gain.
The retreat came after the TSX hit a three-week high on Wednesday, rising 1.3 percent after putting in a strong performance on Tuesday.
"We had a nice big rally and were due for a collective pullback after it moved so much and we're off our lows on the day, so it's a sign that maybe we are forming a bit of a base here," said John Johnston, chief strategist at Davis-Rea.
"In the grand scheme of things, there is some evidence that we're rounding the bottom on the intermediate cycle, so we may be setting up a nice run for the next three or four months. But there is a lot of skittishness in the near term."
Concerns over global economic momentum persisted as data on Thursday showed China's trade surplus narrowed for a second straight month in September, reflecting a cooling economy, with both export and import growth rates easing. [ID:nL3E7LD191]
Worries about a slowdown in the Asian powerhouse sparked a global retreat from equities, oil and other commodities. China is the world's second largest consumer of oil. [O/R]
Suncor Energy SU.TO fell to C$29.14, down 1.59 percent while Cenovus Energy CVE.TO fell 1.58 percent to C$34.26.
The TSX's materials sector also suffered as risk aversion drained copper market sentiment and sent bullion prices lower. China is the world's largest copper consumer.[MET/L]
Barrick Gold ABX.TO slid 2 percent to C$48, while Goldcorp G.TO shares dropped 1.54 percent to C$47.90.
In Europe, Slovakia ratified an agreement on Thursday to expand the powers of the euro zone rescue fund. Slovakia was the last of the 17 euro-zone members to approve the deal, but its move did little to bolster confidence in a solution to Europe's debt problems.
"Some of the gloss is coming off. There has been some hope that Europe was making progress, but there is not a lot happening there," Johnston said.
($1=$1.02 Canadian) (Reporting by Ashleigh Patterson; editing by Peter Galloway)