TORONTO (Reuters) - A sharp drop by resource issues hammered the Toronto Stock Exchange's main index yesterday as commodity prices dropped on concerns that demand could be weakened by the US economic slowdown. In the worst day for the TSX in almost two months, the benchmark index plunged more than 400 points. Resource companies took the biggest hit as oil and gold prices, which have enjoyed a string of record highs over recent months, fell sharply.

Among resource stocks, Suncor Energy was down C$6.25, or 6.1 percent, at C$96.67, while Inmet Mining gave up C$5.89, or 7.3 percent, to C$74.61. Potash Corp of Saskatchewan was the biggest net decliner by weight, shedding C$12.32, or 7.7 percent, to C$147.05.

Lex Kerkovius, senior research analyst at McLean & Partners Wealth Management Ltd. in Calgary, said the optimism that the TSX saw on Tuesday over the US Federal Reserve's 75 basis point rate cut had evaporated as it was less than the full percentage point that some investors had expected.

"Today (investors) decided that it wasn't enough, and without that being enough, they figured that that means demand for metals and materials isn't going to be quite so strong," said Mr. Kerkovius. "So, today (there's) a big sell-off in the commodity complex and down go the markets."

The S&P/TSX composite index closed down 427.32 points, or 3.25 percent, at 12,709.38 with all 10 of its main sectors falling. It was the largest one-day decline since a plunge of more than 600 points in mid-January.

The materials sector posted the biggest loss, giving up 6.1 percent, while its sub-indexes of gold producers and base metals miners sagged five percent and 6.2 percent respectively.

Gold prices in particular were slammed as investors moved out of the safe haven, sending the price of bullion down to $944.20 an ounce. Other metals followed gold's lead, while crude oil prices sagged $4.94 to $104.48 a barrel.

The TSX oil and gas sector fell 4.6 percent, with Canadian Natural Resources falling C$4.36, or 6.1 percent, to C$66.67.

The banking sector, which managed to buck the downward trend for most of the day, got caught up in the retreat late in the afternoon, ending down 0.7 percent. Royal Bank of Canada fell 97 Canadian cents, or 2.1 percent, to C$45.56, but Bank of Montreal was able to stay above water, gaining 21 Canadian cents, or 0.5 percent, to C$42.10.