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CANADA STOCKS-Toronto market extends losing streak as financials tumble

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(Adds details throughout; updates prices)

* TSX ends down 286.13 points, or 1.5%, at 18,329.06

* Posts its lowest closing level since March 2021

* Financials tumble 3.2%

* Energy loses 1.7%; oil settles 0.5% lower

By Fergal Smith

TORONTO, July 14 (Reuters) - Canada's main stock index fell on Thursday to a new 16-month low as the recent inversion of Canada's yield curve weighed on financial shares, while energy shares also lost ground as oil prices fell.

The Toronto Stock Exchange's S&P/TSX composite index ended down 286.13 points, or 1.5%, at 18,329.06, its fifth straight day of declines and its lowest closing level since March 2021.

The S&P 500, a major U.S. benchmark, also fell after investors digested disappointing quarterly results from two large U.S. banks and hotter-than-expected U.S. inflation data.

To tackle soaring inflation, the Bank of Canada on Wednesday raised its benchmark rate by a full percentage point, its biggest hike in 24 years.

The move helped drive short-term bond yields further above longer-term rates, a phenomenon known as curve inversion that can sometimes signal risk of a recession and tends to reduce the margins that banks earn on their loans.

"Banks do better when short-term rates are lower than long-term rates," said Lorne Steinberg, president of Lorne Steinberg Wealth Management Inc.

Rate hikes could also slow the economy, weighing on mortgage lending growth.

"One of two things will happen. Either we will get a recession, then the Bank of Canada at some point can start cutting rates and that will normalize the yield curve, or we will escape recession and long-term rates will probably rise," Steinberg said.

The Toronto market's financial sector, which accounts for 31% of the index's market capitalization, tumbled 3.2%, while energy was down 1.7% as oil prices fell.

U.S. crude prices settled 0.5% lower at $95.78 a barrel, after clawing back much of its earlier decline.

Crude was pressured by the prospect of a large U.S. rate hike later this month that could stem inflation but at the same time hit oil demand. (Reporting by Fergal Smith; additional reporting by Bansari Mayur Kamdar in Bengaluru; editing by Jonathan Oatis)