TORONTO (Reuters) - Canada's weakened economy, hit by the slowdown in the US and dampened world demand for commodities, could push the country's biggest stock market to retest this year's lows, given its heavy reliance on oil and gold.

Investors have long feared the slowing US economy would rub off on Canada and show up in a depressed S&P/TSX composite index on the Toronto Stock Exchange. Now the economic signals are not good and the market lethargy has arrived.

"There's clear evidence that the US economic slump is dragging down Canada's economy," said Sal Guatieri, senior economist, BMO Capital Markets. "It just doesn't look good."

Canada's economy shed 55,000 jobs in July, the biggest monthly loss since the 1991 recession. The number surprised economists who were predicting a gain and who called it "stunningly bad" and "extremely ugly".

As well, gross domestic product unexpectedly fell by 0.1 percent in May compared with April and Canadian housing starts fell almost 15 percent in July.

The weak data also comes as oil and gold - the commodity cornerstones of the Toronto market - beat a retreat from their highs. On Friday, crude fell below $114 a barrel, down from its July record of above $147 amid demand concerns. Gold has sagged below $800 an ounce, buffeted by a stronger US dollar.

"The commodities pullback will unwind some of the gains that we've seen in the terms of trade that have supported income and wealth creation in the country," Mr. Guatieri said.

"It's not a great picture for the second half of this year," he said.

For the Toronto stock market, which is heavily weighted in the shares of oil and bullion producers, this concoction of factors means significant downward pressure, experts say.

"There is plenty of pain still unfolding," said Adrian Mastracci, portfolio manager at KCM Wealth Management Inc. in Vancouver. "I wouldn't be surprised if we retest the market lows."

The year low of the S&P/TSX composite is 12,011.68. On Friday, the market closed at 13,096.70, down 262.21 points.

Financial stocks, another key buttress of the Toronto market, have not been lending support, caught up in a sectoral downdraft that began as a result of the credit crunch in the US last year.

"We've been surprised the market lows haven't been greater than they have been, given the environment that we're in," said Michael Sprung, president at Sprung & Co. Investment Counsel.

The problems are not expected to be short-lived, either. Mr. Sprung - like many economists - is not expecting a recovery from the malaise until well into 2009.

"Our view is that we are unlikely near the bottom yet," he said. "Hopefully, by mid to late next year, the market will be beginning to anticipate a better climate going forward."