CANADA STOCKS-TSX falls nearly 4% as Middle East conflict fuels inflation fears

By Utkarsh Hathi

March 3 (Reuters) - Canada's main stock index fell on Tuesday amid sector-wide losses, joining a global market slide driven by inflation fears as the Middle East conflict entered its fourth day.

The S&P/TSX composite index .GSPTSE was down 3.97% at 33,173.05 points, as of 10:24 a.m. ET, and looked set for its steepest single-day drop since April 2025, when U.S. President Donald Trump announced reciprocal tariffs.

Leading the sector-wide losses, the global gold index .SPTTGD slumped 10.4% and the materials sector .GSPTTMT, which includes metal miners, dropped 9.4%.

Miners First Majestic AG.TO and AYA Gold & Silver AYA.TO plunged more than 13% each, while Capstone Copper CS.TO slumped 13.3% after reporting quarterly profit below estimates after the bell on Monday.

Spot gold XAU= fell more than 4%, while silver XAG= dropped more than 9% as the U.S. dollar strengthened amid escalations in the Middle East conflict.

Middle East analysts fear the Iranian air strikes on U.S.-allied Gulf states could widen the war against Iran.

Investors are worried about inflation as the U.S.-Israeli war on Iran halted energy exports from the Middle East, with oil prices surging more than 16% this week already, while gas prices have also risen.

The energy stocks .SPTTEN fell 0.5%.

Bond markets across the world also sold off sharply on Tuesday, pushing traders to lower their bets for rate-cuts from the U.S. Federal Reserve and the other central banks.

"Central bankers actually need to see a protracted rise in inflation more than just a short-term blip due to energy prices rising as a result of the conflict," said Shiraz Ahmed, founder at Sartorial Wealth.

"If there is a longer term rise in inflation data or if we see GDP shrink as a result, that will definitely be a large impetus for the central banks to act."

Industrials .GSPTTIN, heaviest-weighted financials .SPTTFs, and the consumer discretionary sector .GSPTTCD fell nearly 2.5% each, while tech stocks .SPTTTK fell 2.7%.

Among rare gainers, energy firm Paramount Resources POU.TO gained 5% after reporting better-than-expected fourth-quarter revenue.