Jan. 7 (Bloomberg) -- Toronto-Dominion Bank fell to a six- week low on speculation Canada's second-largest bank may write down loans tied to the subprime mortgage market.

Toronto-Dominion spokesman Simon Townsend said in an e- mailed statement that ``TD does not have any direct or indirect exposure to U.S. subprime mortgages.'' The Toronto bank's shares fell C$1.46, or 2.2 percent, to C$65.66 in Toronto trading.

Options traders increased their bets that the stock will continue to decline.

``They're supposedly going to be taking a writedown related to their subprime and collateralized debt obligation exposure,'' said Michael Nasto, senior trader at U.S. Global Investors Inc., which manages $5 billion in San Antonio. ``We're hearing it's going to be $11 billion.''

In Canadian options trading, contracts that convey the right to sell the shares at C$62 before Jan. 18 were the most active. Those contracts, which require a 5.9 percent share-price drop to reach their strike price, more than quadrupled to 45 cents in Montreal trading.

Bearish options bets outnumbered bullish ones, or calls, by 2-to-1 in Canada and 34-to-1 in U.S. trading. Puts trading volume in the U.S. surged to 10,537 contracts, or 29 times the 20-day average.

``There are rumors of a writedown,'' said Steve Sosnick, equity risk manager at Timber Hill LLC, the options market-making unit of Interactive Brokers Group. ``I'm seeing very active put buying of TD options in both Canada and the U.S. and for TD this is unusual activity.''

Commerce Acquisition

Toronto-Dominion agreed on Oct. 2 to pay $8.5 billion for Commerce Bancorp, the largest bank based in New Jersey, in the biggest foreign takeover by a Canadian lender. Commerce posted a $47.9 million third-quarter loss three weeks later and said U.S. regulators are probing transactions by bank officials.

Ed Clark, Toronto-Dominion's chief executive officer, said in a Nov. 30 conference call that the bank had ``no exposure to U.S. subprime lending''

U.S. banks and brokerages reported $97 billion in mortgage- related writedowns and credit losses last year.

To contact the reporter on this story: Jeff Kearns in New York at jkearns3@bloomberg.net.

Last Updated: January 7, 2008 17:03 EST