UPDATE 5-Toronto stocks dive as commodities retreat

* Toronto stocks give up close to 7 percent

* Potash, Agrium lead declines after downgrade

* Financial-market uncertainty continues to weigh (Adds details)

By Wojtek Dabrowski

TORONTO, Oct 2 (Reuters) - The Toronto Stock Exchange's main index fell nearly 7 percent on Thursday to its lowest level in more than two years, battered by concerns over the outlook for fertilizer producers and a drop in oil and gold prices.

The plunge in shares of big fertilizer producers Potash Corp of Saskatchewan (POT.TO) and Agrium Inc (AGU.TO) came amid worries that the U.S. credit crisis could hamper farmers' ability to get cash for next year's planting season. It marked the latest in a series of shock waves emanating from Wall Street's turmoil and the related slowdown in the global economy.

"It's really brutal out there," said Sal Masionis, a stockbroker at Brant Securities. "The most important thing is the tightness in the money market and the capital markets as a whole."

The S&P/TSX composite index .GSPTSE plunged 813.97 points, or 6.95 percent, to 10,900.54.

The S&P/TSX 60 index of Canadian blue chips shed 7.45 percent to end at 651.34.

All but one of the composite's 10 main subgroups fell, including the powerful energy and materials groups, which shed 8.55 percent and 17.2 percent, respectively.

Potash Corp and Agrium, two of the main movers that powered the Toronto market during the commodities boom, dropped more than 20 percent each after Merrill Lynch downgraded the stocks because of uncertainty over earnings for the fertilizer sector. [ID:nN02254052].

Potash gave up 26 percent to close at C$101, while Agrium fell 23 percent to finish at C$45.01.

Commodities also failed to lend support as gold sank on a dollar rally and oil fell more than 4 percent as the financial crisis stoked concerns about demand.

This, in turn, weighed on Toronto-listed producers. Inmet Mining (IMN.TO) fell 15.3 percent to C$39.82 and Barrick Gold (ABX.TO) gave up 16.4 percent to C$33.25. Energy giant EnCana Corp (ECA.TO) fell 9.2 percent to C$59.46.

The continuing volatility led at least one money manager to advise clients to avoid stocks altogether.

"You don't go hide in equities. You've got to go hide in some fixed income, even if it's Treasury bills earning 1.5 to 2 percent," said Adrian Mastracci, portfolio manager at KCM Wealth Management Inc. "Stay away from the equities at the moment."

In the United States, economic worries continued to drag as investors and analysts tried to predict the final fate of a multibillion-dollar bailout package by the U.S. government aimed at saving the financial services sector.

The Dow Jones industrial average .DJI fell 348.22, or 3.22 percent, 10,482.85. The tech-heavy Nasdaq .IXIC tracked lower by 4.48 percent to finish at 1,976.72.

($1=$1.08 Canadian) (Reporting by Wojtek Dabrowski; editing by Peter Galloway)