CANADA STOCKS-TSX drops as fading banks offset energy rally

* TSX down 45.79 points, or 0.44 percent, at 10,346.58

* Fall in bank shares pushes TSX lower

* Energy and gold-mining shares cushion fall

TORONTO, May 29 (Reuters) - Toronto's main stock market index was lower on Friday afternoon as investors opted to rebalance their portfolios heading into month-end, but energy shares helped cushion the decline.

The financials index, down 2 percent, was responsible for the bulk of the index's drop as investors opted to pocket some of the gains recorded this week after the most Canadian banks reported stronger-than-expected quarterly results.

Shares of Royal Bank of Canada (RY.TO: Quote, Profile, Research), the biggest drag on the index, were off 5 percent at C$43.15, while Bank of Nova Scotia (BNS.TO: Quote, Profile, Research) dropped 1.4 percent to C$37.36.

Higher prices for key Canadian exports oil and gold helped prop up the energy sector 0.4 percent and the mining-heavy materials group by 0.45 percent.

"There's some profit-taking here coming into month-end as people are just squaring positions," said Bruce Latimer, trader at Dundee Securities. "But there's strength in gold and oil so that's sort of offsetting the financials."

At 1:35 p.m. (1735 GMT), the S&P/TSX composite index .GSPTSE was down 45.79 points, or 0.44 percent, at 10,346.58 after earlier rallying as much as 100 points.

($1=$1.09 Canadian) (Reporting by Frank Pingue; editing by Peter Galloway)