CANADA STOCKS-TSX inches lower as Middle East tensions weigh

By Tharuniyaa Lakshmi

May 12 (Reuters) - Canada's main stock index dipped on Tuesday, as a surge in oil prices driven by an impasse in the U.S.-Iran peace talks weighed on investor sentiment.

At 10:45 a.m. ET, the Toronto Stock Exchange's S&P/TSX composite index .GSPTSE was down 0.2% at 34,047.97 points after two straight days of gains.

U.S. President Donald Trump said a ceasefire with Iran was "on life support" following Tehran's rejection of a U.S. proposal to end their conflict.

Oil prices <LCOc1> CLc1 rose more than 3% as stark differences between Tehran and Washington on the peace proposal brought supply concerns again to the fore. O/R

Canada's oil stocks .SPTTEN jumped 1.1%, though several subsectors including technology .SPTTTK and healthcare .GSPTTHC came under pressure.

Investors fear that surging energy prices will feed into inflation and slow economic growth even though commodity-heavy Canadian stock markets have remained relatively insulated from the impact of the war.

"The Canadian market had been expecting the central bank to continue cutting rates. Instead, they’ve paused and the risk now is that they may need to raise rates," said Shiraz Ahmed, founder at Sartorial Wealth.

"If they start doing a raising cycle, then that is definitely a concern."

Wall Street stocks fell after data showed U.S. consumer prices rose at a brisk clip for a second straight month in April, resulting in the largest annual increase in inflation in nearly three years and bolstering expectations the Federal Reserve would keep interest rates unchanged for a while.

On the domestic earnings front, Pet Valu PET.TO fell 14.1% to a record low and to the bottom of the benchmark index after the pet food retailer's first-quarter profit fell on higher operating costs.

Paramount Resources POU.TO rose 3.9% after the oil and gas producer lifted its full-year output guidance.