(Updates with morning prices)

By Ragini Mathur

Oct 21 (Reuters) - Canada's main stock index fell on

Tuesday, led by declines in the materials sector, after

hotter-than-expected inflation figures prompted investors to

scale back bets for an imminent interest rate cut by the Bank of

Canada.

At 10:07 a.m. ET (1407 GMT), Toronto's S&P/TSX composite

index was down 1.5% at 29,968.95 points. The index is

set for its worst day since April 10.

Canada's annual inflation rate increased to 2.4% in

September. Analysts polled by Reuters had forecast the annual

inflation would rise to 2.3% in September from 1.9% in August.

"With the data pause that we still have because of the U.S.

government shutdown...we do have to focus a lot on the Canadian

economic data and, unfortunately, the news about inflation was

not great," said Douglas Porter, chief economist at BMO Capital

Markets.

This was the most crucial data point to be released ahead of

the Bank of Canada's upcoming monetary policy decision later

this month.

Money market expectations for a 25-basis-point cut went down

to 74% from over 86% before the data was released.

On the TSX, materials took the hardest hit,

falling 6.9% as gold prices retreated more than 3%, with

investors booking profits after the precious metal reached a

record high in the previous session.

"It is fairly clear that the material sector is going to

take it on the chin today, given what's happening in gold and

silver prices," Porter said.

Heavyweight financials gained 0.2%, benefitting

from the tempered rate-cut expectations.

Rate-sensitive utilities dropped 0.7%.

On the trade front, the Globe and Mail reported that a

U.S.-Canada trade deal covering steel, aluminum and energy could

be ready for Prime Minister Mark Carney and U.S. President

Donald Trump to sign at the Asia-Pacific Economic Cooperation

summit later this month.