TORONTO (Bloomberg) — Canadian stocks fell, sending the country's main stock index to its biggest two-day drop in a year, on concern that rising global interest rates will crimp profits, reduce demand for loans and reduce the appeal of dividends.Interest-rate sensitive financial and utility companies such as Brookfield Asset Management and Fortis led declines.

Industrial shares such as Canadian National Railway, among the most closely related to economic expansion, also fell, while raw-materials producers declined along with metals prices.

The Standard & Poor's/TSX Composite Index slid 237.71, or 1.7 percent, to 13,703.88 in Toronto. The benchmark has fallen 3.1 percent in two days, the most since a 4.3 percent decline on June 12 and June 13 of last year. The S&P/TSX, which reached a record of 14,146.74 this June 4, pared its year-to-date gain to 6.2 percent.

"We may have a pull-back of five percent to 10 percent," said Jackee Pratt, who helps manage $712 million at Mavrix Fund Management in Toronto. "Interest rates are moving higher."

A measure of financial stocks, the biggest by value in the S&P/TSX, fell 1.6 percent.

New Zealand's unexpected increase of its benchmark rate to 8 percent followed an increase yesterday by the European Central Bank. The Bank of England today kept its target rate at 5.5 percent, the highest since April 2001, after raising it the four previous times.

US 10-year treasury bonds fell on New Zealand's move, pushing the notes' yield above five percent for the first time since August, as traders increased bets that the US Federal Reserve will raise borrowing costs this year.

The Bank of Canada said on May 29 that it may increase borrowing costs from the current 4.25 percent rate to slow inflation.

Canada's economy grew at an annualised 3.7 percent rate in the first quarter, up from 1.5 percent in the fourth quarter, according to a government report released May 31.

Canada's dollar has advanced about nine percent this quarter to near a 30-year high against its US counterpart as the economy accelerated and government bond prices fell.

The yield on Canada's two-year note, which moves inversely to its price, rose to the highest since March 2002.

Brookfield Asset, an investor in power stations and infrastructure, lost C$2.30 to C$40.81.

Toronto-Dominion Bank, the country's third-biggest lender by assets, dropped C$1.06 to C$72.07.