* TSX ends down 0.3% at 33,818.19

* Materials group tracks the price of gold lower

* ARC Resources ( AETUF ) jumps 21.1% after takeover deal

* Energy adds 2.3% as oil settles 2.1% higher

(Updates at market close)

By Fergal Smith

TORONTO, April 27 (Reuters) - Canada's main stock index

fell for a third straight day on Monday as metal mining shares

lost ground, and despite gains for energy after a deal to buy

ARC Resources ( AETUF ) which could mark a turning point for the

sector.

The Toronto Stock Exchange's S&P/TSX composite index

ended down 85.92 points, or 0.3%, at 33,818.19, adding

to modest declines on Thursday and Friday.

Shell has agreed to buy energy company ARC Resources ( AETUF )

in a $16.4 billion deal, paid for mostly with shares,

the British firm said. Shares of ARC jumped 21.1% and Kelt

Exploration ( KELTF ) ended up 13.5%, which helped lift the

energy sector by 2.3%.

The price of oil settled 2.1% higher at $96.37 a barrel.

Peace talks between the U.S. and Iran stalled and shipments

through the Strait of Hormuz remained limited, keeping global

oil supplies tight.

"To me the ARC thing was the most positive thing we saw

today and that should be something that we can build off of,"

said Greg Taylor, chief investment officer at PenderFund Capital

Management.

"It's been nearly a decade where foreigners have been

selling Canadian assets and if that tide's turning the other

direction then that's a pretty big thing for Canada."

Canada will set up a sovereign wealth fund with an initial

endowment of C$25 billion ($18.38 billion) to invest in major

domestic projects, Prime Minister Mark Carney told reporters one

day ahead of a government fiscal update.

Telecom operator Rogers Communications is offering

voluntary departure packages to half of its 25,000 employees,

the Globe and Mail reported. The company's shares were up 1.1%.

Seven of 10 major sectors declined, including the materials

group, which is home to metal mining shares. It ended

1.1% lower as the price of gold fell.

Consumer discretionary lost 1.7% and consumer

staples was down 1%.