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TSX set for worst day in over a month after CPI data fuels rate-hike worries

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Sept 19 (Reuters) - Canada's main stock index fell 1%, extending declines for a second consecutive session on Tuesday, dragged down by rate-sensitive technology stocks after hotter-than-expected inflation data fanned fears that the Bank of Canada (BoC) might raise interest rates further.

At 10:22 a.m. ET (1422 GMT), the Toronto Stock Exchange's S&P/TSX composite index (.GSPTSE) was down 207.56 points, or 1.01%, at 20,285.27 and set for its worst day in more than a month if losses hold.

Canada's annual inflation rate in August jumped to 4.0% from 3.3% in July on higher gasoline prices, data showed, while analysts polled by Reuters had forecast inflation would hit 3.8%.

Two of the three core inflation meterics also rose.

"The fact that headline inflation is back to 4% and underlying inflation is strong is basically bad news for the BoC and I think unfortunately we haven't shut the door on the possibility that the bank might need to raise interest rates further," said Douglas Porter, chief economist, BMO Capital Markets.

Traders are now betting there is a 42% chances of a rate hike in October.

The Canadian dollar strengthened to a near six-week high against its U.S. counterpart as investors raised bets on further rate hikes.

Information technology stocks <.SPTTTK> dropped 2.0%, while utilities shares (.GSPTTUT) fell 0.8%.

Heavily-weighted financials (.SPTTFS) slipped 0.5%.

Canada's Liberal government, trailing in the polls amid complaints about the high cost of living, on Monday said it would soon introduce wide-ranging draft legislation designed to help curb inflation.

On the political front, Canadian Prime Minister Justin Trudeau said authorities were "actively pursuing credible allegations" linking New Delhi's agents to the murder of a Sikh separatist leader, an assertion India quickly dismissed as "absurd".

Investors will closely watch the monetary policy decision of the U.S. Federal Reserve on Wednesday, where the central bank is widely expected to hold rates steady.

Reporting by Siddarth S in Bengaluru; Editing by Tasim Zahid

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