* TSX ends 0.66 percent lower at 13,259.63
* All 10 TSX sectors retreat
* Mining, energy shares lead broad sell-off (Adds details, commentary)
By Cameron French
TORONTO, Jan 25 (Reuters) - Toronto's main stock index closed sharply lower on Tuesday as a surprise contraction in Britain's economy and an interest rate hike in India combined to fuel fears of weaker commodity demand, hurting resource issues.
Prices for oil and copper weakened, pulling down the TSX index's energy and materials sectors by 1.5 percent and 0.6 percent, respectively, and briefly dragging the composite index to a two-week low.
The Indian rate hike comes as fears intensify that rising inflation could prompt China could follow suit.
"Growth from China is strong, but you have worries about inflation and worries that they're going to cool the economy. And with India cooling their economy, demand for commodities may not be as hot as it was in 2010," said Barry Schwartz, a portfolio manager at Baskin Financial Services in Toronto.
The S&P/TSX composite index .GSPTSE finished the session down 87.95 points, or 0.66 percent, at 13,259.63.
Among energy stocks, Nexen Inc NXY.TO fell 2.6 percent to C$24.27, while Suncor Energy SU.TO retreated 1.8 percent to C$37.61.
Base metals miner Teck Resources TCKb.TO sank 1.2 percent to C$59.10, while Kinross Gold K.TO slid 1.7 percent to C$16.25 as the gold price continued its slide.
"Gold does really poorly in a rising interest rate environment," Schwartz said.
Baffinland Iron Mines BIM.TO ended flat at C$1.49 after a majority of shareholders tendered to a joint C$590 million takeover offer by ArcelorMittal and Nunavut Iron, which want Baffinland's massive Arctic iron ore deposit. [ID:nASA01FBS]
All 10 of the TSX index's sectors ended lower as investors waited for signs that fourth-quarter earnings will justify the recent strength in the market.
The TSX rose 8.7 percent in the final quarter of 2010, and most companies will report over the next three weeks.
"This rally is getting a little long in the tooth and it's difficult to find support for further upward momentum, and I think we're just seeing the start of some profit-taking," said Philip Petursson, director of the portfolio advisory group at MFC Global Investment Management.
Canadian National Railway CNR.TO dropped 1.1 percent to C$67.71, as its underlying profit rose slightly less than expected due to higher fuel and other expenses.[ID:nN25255492]
CN's weakness, combined with a 3.3 percent drop in shares of engineering firm SNC-Lavalin SNC.TO, helped pull the TSX industrials group down by 0.6 percent. SNC finished at C$60.05.
($1=$1.00 Canadian) (Additional reporting by Claire Sibonney; editing by Peter Galloway)