CANADA STOCKS-TSX drops to three-month low as Mideast conflict escalates, miners tumble

By Purvi Agarwal

March 19 (Reuters) - Canada's main stock index fell to a three-month low on Thursday as an escalation in the Middle East conflict following attacks on energy infrastructure in the region dented risk appetite, with sharp declines in mining shares adding further pressure.

At 10:28 a.m. ET, the Toronto Stock Exchange's S&P/TSX composite index .GSPTSE was down 2.1% at 31,650.70.

The materials sector .GSPTTMT, which includes mining stocks, led the declines, down more than 7% and heading for its biggest one-day fall since January 30. Silver miners such as Discovery Silver DSV.TO and Endeavor Silver EDR.TO tumbled more than 11% each, tracking an 8% decline in prices of the white metal.

Gold XAU= fell 5%, while copper slid to three-month lows. GOL/ MET/L

Oil prices climbed again on Thursday with benchmark Brent crude futures LCOc1 jumping above $119 a barrel, after Iran attacked energy facilities across the Middle East following Israel's strike on its South Pars gas field. O/R

The spike sapped broader risk appetite, with most sectors on the TSX trading lower, but sent the energy sector .SPTTEN up 1.8%. Energy stocks are on track for a seventh straight session of gains - their longest streak since June.

"Energy prices are risking becoming entrenched, even if some form of de-escalation can take place... today's moves suggest markets may be waking up to the fact that a prolonged energy crisis is now the more likely scenario," said Stuart Clark, portfolio manager at Quilter.

"This heightened level of volatility will likely be maintained given the uncertainty to the duration of the war or the endgame."

Global central banks struck a hawkish tone, signaling they were ready to tackle any surge in inflation with tighter policy as energy prices remain elevated on supply disruptions, with the war dragging on.

The Federal Reserve projected a single reduction this year, driving money market participants to scale back rate-cut bets. Traders are not fully pricing in any easing from the Fed this year, compared with expectations of two cuts before the war, LSEG-compiled data showed.

The Bank of Canada said on Wednesday it was open to interest rate hikes if needed. Canada is relatively insulated from crude price shocks, being a net oil exporter.