TORONTO (Bloomberg) — Canadian stocks fell for the first time in three days, led by banks such as Bank of Nova Scotia, on speculation that accelerating economic growth and inflation may prompt the central bank to raise borrowing costs."In Canada, we've got anticipation of rate hikes happening. That'll hurt the interest-rate sensitive financial stocks," said Michael Sprung, who overseas about $50 million as president of Sprung & Co. Investment Counsel in Toronto. "I expect the market to go sideways at best or correct in the next six months."

The Standard & Poor's/TSX Composite Index slipped 5.05, or less than 0.1 percent, to 14,141.69 in Toronto. Canada's stock benchmark is up 9.6 percent this year and closed at a record 14,146.74 yesterday. Gains for materials shares including First Quantum Minerals Ltd helped limit the S&P/TSX's losses yesterday.

Scotiabank, the nation's second-largest lender by assets, lost 39 cents to C$52.77. Royal Bank of Canada, the country's biggest bank, slid 17 cents to C$57.47. Manulife Financial Corp., Canada's biggest insurer, fell 29 cents to C$39.25.

A measure of financial shares declined 0.5 percent for the second-biggest retreat among the 10 industry groups in the S&P/TSX.

Higher borrowing costs may lower the value of bonds held by banks and insurers, and cut demand for loans.

Yesterday, Canada's two-year bond fell, pushing the yield to a five-year high, on speculation the central bank will raise interest rates as soon as next month to stem inflation.

Consumer prices, excluding volatile components such as energy, accelerated in April to the highest level in more than four years, Statistics Canada said last month.

Merrill Lynch & Co. said yesterday the Bank of Canada will raise rates as Canada's economy is stronger than it had anticipated. The economy grew from January through March at the fastest pace since the third quarter of 2005.

The yield on Canada's two-year bond rose 3 basis points, or 0.03 percentage point, to 4.61 percent. Earlier, it touched 4.62 percent, matching the highest level since March 2002.