TORONTO (Reuters) - Toronto's main stock index joined a global equity sell-off on yesterday, falling more than five percent for its biggest one-day drop in three months, due to weaker oil prices and data that showed the Canadian economy shrank.

Heavily weighted financial shares were also a major drag on the index as news that US insurer AIG posted a record quarterly loss fuelled fears that the global financial crisis was worsening.

That sentiment dragged shares of insurer Manulife Financial down 10 percent to C$11.58, while Bank of Nova Scotia tumbled 5.85 percent to C$27.03. The Toronto Stock Exchange's broader financial index ended down 4.5 percent.

"The market is down over worries about global growth as well as continued worries about what's happening with financial services in the US and how much worse it will get, which is affecting financials everywhere," said Kate Warne, Canadian market strategist at Edward Jones in St. Louis, Missouri.

"But it's clearly more of a reaction than I expected since I thought people were pretty pessimistic already."

Nagging concerns that a deteriorating world economy could cut further into fuel consumption shook oil prices and shares of energy companies. Suncor Energy fell 10 percent to C$23.75, and EnCana Corp dropped six percent to C$47.07. The energy sector ended down 8.31 percent.

The S&P/TSX composite index closed the session down 435.51 points, or 5.36 percent, at 7,687.51, which more than erased all of last week's two percent gain. All 10 of the TSX's sectors ended the session well in lower territory.

At one point, the composite index fell as low as 7,589.66, which left it less than 24 points from its lowest level since October 2003.

Data released before the index opened showed Canada's gross domestic product contracted in the fourth quarter of 2008 at a faster pace than any quarter since the start of 1991.

That figure was slightly better than expectations but still supported expectations for the Bank of Canada to cut its key interest rate today below the current 1.00 percent.