Dollar rally bats down oil, metals

By Barani Krishnan

NEW YORK, Sept 4 - Oil and metals prices fell in New York trading Thursday as the dollar rallied to its highest level against the euro this year, further curbing appetites for raw materials denominated in the U.S. currency.

But the wheat market rose in Chicago, reacting to demand from Egypt, and corn prices gained in sympathy.

U.S sugar and orange juice prices were also higher on concerns over storms developing in the Atlantic that traders said had a chance of damaging citrus groves and other crops.

Despite the advance in certain markets, analysts said the overall mood in commodities was far from rosy as falling demand for energy kept the most aggressive investors away from the sector.

The rise of the dollar -- now at around $1.43 to the euro after touching record lows of $1.60 in July -- was another bearish factor for commodities.

"Heavy liquidation in commodities funds appears to be slowing down as crude prices stabilize, but a great amount of uncertainty is still there and such factors as oil and the dollar will continue to outweigh fundamentals," said a grains dealer at KB Futures in Seoul, South Korea.

Another trader suggested that the rise in Chicago wheat and corn could be an aberration in an otherwise negative environment. "We'll have to see whether Chicago confirms its technical rebound, because in terms of fundamentals there is nothing new," the trader said.

In oil, U.S. crude on the New York Mercantile Exchange, or NYMEX, fell almost 3 percent to a session low of $106.25 a barrel. It closed down $1.46 at $107.89.

The drop in crude prices came after U.S. government data showed total demand for oil products, such as gasoline and distillates, over the past four weeks fell 3.5 percent from a year ago.

"Demand is still pretty weak," said Simon Wardel, analyst at Global Insight. "We are seeing much more supply and I think (concern over) demand is going to take precedence at the moment."

Bulls in energy markets are also pinning hopes on the Sept. 9 meeting of oil producing group OPEC, where traders said a consensus was building to cut oil production to support prices and prevent a supply overhang from developing.

In precious metals, U.S. gold futures for December settled down $5, or 0.6 percent, at $803.20 an ounce on the COMEX division of NYMEX.

COMEX copper for December finished down $4.60, or 1.4 percent, at $3.2660 a lb.

On the agricultural front, September soft red winter wheat on the Chicago Board of Trade settled up 3 cents at $7.55-1/4 a bushel on news that Egypt had bought 292,500 tonnes of wheat, 40 percent of which was U.S.-sourced.

CBOT corn futures for September closed up 2-3/4 cents at $5.49-1/4 a bushel.

Soybean futures for November fell 16-1/2 cents, or 1.3 percent, to $12.35 a bushel after rains in the key soybean growing areas of the U.S. Midwest boosted soybean harvest prospects.