* Key Toronto index falls as much as 2.9 percent
* Financial and energy shares spearhead index’s drop
* TSX briefly held in positive territory at open (Adds details)
By Frank Pingue
TORONTO, Jan 20 (Reuters) - Toronto’s main stock index was 2 percent lower at midmorning on Tuesday as continuing fears about the state of the world banking system rattled financial shares.
The index’s drop was also being driven by weakness in the energy group, which led all sectors with a 4.78 percent fall after oil dropped by more than $3 a barrel early in the day.
Canadian bank shares headlined the index’s drop after news on Monday that Royal Bank of Scotland RBS.L posted the biggest loss in British corporate history, a development that heightened fears for North American banks.
Toronto’s financial index was down 3 percent.
“You only have to look around the world and it’s a foretaste of what is to come,” said John Ing, president of Maison Placements Canada. “The financials had been particularly week and it looks like we are going to get a retest of the lows so they are dragging down the market.”
Among the key stocks dragging the index lower were Toronto Dominion Bank TD.TO, which was down 4.3 percent at C$40.40 and Royal Bank of Canada RY.TO, which dropped 3.5 percent to C$31.44.
At 10:15 a.m. (1515 GMT), the The Toronto Stock Exchange’s S&P/TSX composite index .GSPTSE was down 178.62 points, or 2.02 percent, at 8,662.86.
The index rose as much as 27 points to 8,869.30 moments after the open, but then fell quickly as low as 8,583.74, a loss of 257 points.
Oil prices bounced off their early lows, but the move was not enough to halt a skid in shares of Canadian energy companies as prices for the commodity remain more than $110 below the record highs above $147 a barrel hit last July.
Shares of Canadian Natural Resources CNQ.TO dropped 6.5 percent to C$44.27, while EnCana Corp ECA.TO shares were down 4.8 percent at C$53.01.
$1=$1.26 Canadian Reporting by Frank Pingue; editing by Peter Galloway