TSX falls as euro zone fears hit gold price

TORONTO (Reuters) - Toronto's main stock index was lower on Thursday morning, but well off its 1 percent fall shortly after the open, as gold-mining shares fell along with bullion prices after weak European bond sales sparked fears of a worsening euro-zone debt crisis.

In sales on Thursday, 10-year Spanish bond yields approached the precarious 7 percent mark, their highest level since 1997. A French bond auction also saw high yields.

The heavily weighted materials sector led the Toronto index's losses, down 1.3 percent, mostly due to gold-mining stocks, which fell 1.4 percent as bullion prices continued their slide, hitting a one-week low.

Goldcorp (G.TO: Quote), down 1.5 percent at C$52.71, and Barrick Gold (ABX.TO: Quote), down 1.6 percent at C$51.82, led the sector's losses.

Solid U.S. economic data helped limit the index's losses. U.S. claims for jobless benefits hit a seven-month low last week, while permits for home construction rebounded strongly last month, bolstering views the economy was gaining traction.

If we didn't have that outstanding problem in Europe we'd actually see the (index rising), said Robert Kavcic, economist at BMO Capital Markets.

At 10:25 a.m., the Toronto Stock Exchange's S&P/TSX composite index .GSPTSE was down 55.91 points, or 0.5 percent, at 12,118.45. Shortly after the open it fell as much as 121.39 points, or 1 percent, to 12,052.25.

($1=$1.02 Canadian)

(Editing by Peter Galloway)