CANADA STOCKS-TSX posts biggest drop in two months as rate cut bets ebb

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TSX ends down 0.7% at 22,199.13

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Posts its biggest decline since Feb. 13

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BoC leaves benchmark rate on hold at 5%

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Financials lose 1.6%

(Updates to market close)

By Purvi Agarwal and Fergal Smith

April 10 (Reuters) - Canada's main stock index fell by the most in nearly two months on Wednesday as the Bank of Canada left its policy rate on hold and news of hotter-than-expected U.S. inflation prompted investors to scale back expectations for interest rate cuts.

The Toronto Stock Exchange's S&P/TSX composite index ended down 162.65 points, or 0.7%, at 22,199.13, its biggest decline since Feb. 13.

"Markets are nervous" because there will not be as many interest rate cuts this year as previously thought, said Greg Taylor, chief investment officer at Purpose Investments.

U.S. stocks tumbled and bond yields jumped after U.S. consumer prices rose more than expected in March, throwing cold water on hopes the Federal Reserve would enter its monetary policy easing phase soon.

The Bank of Canada kept its key interest rate unchanged at a near 23-year high of 5% but said a cut in June was possible if a recent cooling trend in inflation continues.

The Canadian central bank is taking another step towards cutting rates but needs to see more evidence that the move lower in inflation will be sustained, said Andrew Kelvin, chief Canada strategist at TD Securities.

Financials, the most heavily weighted sector on the Toronto market, fell 1.6% and technology was down 1.7%.

Nine of the TSX's 10 main sectors lost ground. The exception was energy which notched a gain of 1.8% as the price of oil settled 1.2% higher at $86.21 a barrel. (Reporting by Fergal Smith in Toronto and Purvi Agarwal in Bengaluru; Editing by Ravi Prakash Kumar and Richard Chang)