Toronto stocks were walloped Tuesday, hit hard by a falling energy sector and hawkish noises from the Bank of Canada, which raised the key overnight rate by 25 basis points.

The S&P/TSX composite index finished down 208.35, or 1.97%, to 10,345.09.

Volume on the senior exchange was 284 million shares.

In announcing it was raising the overnight rate to 3%, the Bank of Canada said that the economy was now operating at full capacity and indicated it was concerned with inflationary pressures in the economy.

Most analysts expect the Bank to hike rates again in December.

That helped boost the Canadian dollar, which reversed an early morning loss and ended the day by gaining 0.05 of a cent to US84.86¢.

All 10 TSX main sub-groups ended lower, with the energy sector falling 4.39%

U.S. crude settled down $1.16 to US$63.20 a barrel after a gain of 2.8% on Monday.

The latest tracking forecasts showed that hurricane Wilma posed little threat to oil and gas facilities dotting the U.S. Gulf coast.

Suncor Energy fell $2.11, or 3.95%, to $51.34.

Gold for December delivery closed at US$474.60 an ounce on the New York Mercantile Exchange, down 0.40%. The materials group was down 2.31%.

Canadian National Railway reported $411 million in profit in the third quarter, an increase of 19%. Nevertheless, its shares fell $1.91, or 2.28%, to $82.00.

The heavily weighted financials group was off 0.8%.

The junior S&P/TSX Venture composite index finished down 27.94 points, or 1.35%, to 2,035.21.

In New York, inflationary worries, fuelled by a rising producer price index, took the shine off a number of good earnings reports, including from IBM and 3M.

The Dow Jones industrial average fell 62.84 points to 10,285.26. The Nasdaq Composite Index dropped 14.30 points at 2,056.00, while the S&P 500 Index was off 11.96 points at 1,178.14.