CANADA STOCKS-TSX falls the most in two months as tariff threats spook investors globally

By Fergal Smith

Jan 20 (Reuters) - Canada's main stock index posted on Tuesday its biggest decline in two months as investors worried about Japan's fiscal health and the potential for an escalating trade clash between the United States and Europe.

The S&P/TSX Composite Index .GSPTSE ended down 340.68 points, or 1%, at 32,750.28, pulling back from a record closing high on Monday and posting its biggest decline since November 20.

All three major Wall Street indexes also closed well down in a broad selloff triggered by concerns that fresh tariff threats from U.S. President Donald Trump against Europe could signal renewed market volatility.

"There is this revisit of 2025 tariff wars," said Ben Jang, a portfolio manager at Nicola Wealth. "Eventually, like last year, cooler heads will prevail but this current ask is quite aggressive and the threat of escalation is there and is quite high."

Canadian Prime Minister Mark Carney said his country strongly opposed any tariffs being imposed by the U.S. to further Trump's aim of acquiring Greenland.

Global sovereign debt markets fell as investors reacted to trade tensions as well as turbulence in Japanese government bonds after Prime Minister Sanae Takaichi's calling of a snap election shook confidence in Japan's fiscal health.

"The market has drawn this line in the sand and it's a concern globally just because of Japan's influence on global capital flows. The flow of funds back to Japan could cause larger concerns of risk across the board," Jang said.

The technology sector .SPTTTK led declines, ending nearly 4% lower. Industrials .GSPTTIN lost 2.3% and heavily weighted financials .SPTTFS were down 1.5%.

Overall losses were limited by gains for the materials sector .GSPTTMT, which includes metals and mining shares. It added 1.9% as gold XAU= jumped to another record high, benefiting from safe-haven demand.