* TSX ends down 0.5% at 20,274.21

* Energy tumbles more than 4%

* Bank of Canada holds policy rate at 5%

* Bond proxies rally; utilities adds 1.6%

Dec 6 (Reuters) - Canada's main stock index fell on Wednesday for a third straight day as a drop in oil prices weighed on energy shares, offsetting optimism that interest rates have peaked after the Bank of Canada's latest move to stay sidelined.

The Toronto Stock Exchange's S&P/TSX composite index ended down 101.72 points, or 0.5%, at 20,274.21, adding to modest declines on Monday and Tuesday. On Friday, the TSX posted its highest closing level in 2-1/2 months.

The energy sector tumbled more than 4% as oil settled 4.1% lower at $69.38 a barrel, pressured in part by recent worries about China's economic health.

"Even though OPEC obviously did cut production again, the focus and the concern really is around the demand picture," said Christine Tan, a portfolio manager at SLGI Asset Management Inc.

The move lower in energy came as a government source said that Canada plans to unveil a cap and trade system starting in 2026 for limiting emissions from the oil and gas sector.

Technology was also a drag, falling 1.6%, as shares of Shopify Inc ended down 4.8% after brokerage Wedbush downgraded the e-commerce company's stock.

The Canadian central bank held its benchmark interest rate at 5%, as expected. It left the door open to another hike, saying it was still concerned about inflation, but acknowledged an economic slowdown and a general easing of prices.

"The commentary turned a little bit dovish compared to last month," Tan said. "You're seeing the defensive sectors, what I call the bond proxies, being the best performers."

Sectors that tend to produce predictable cash flows, such as utilities, real estate and communication services, could particularly benefit from a peak in interest rates, analysts say.

Utilities rose 1.6%, real estate was up 0.9% and communication services added nearly 1%. (Reporting by Fergal Smith in Toronto and Shashwat Chauhan in Bengaluru: Editing by Tasim Zahid and Richard Chang)