Mostly down on worries over credit crisis handling

* U.S. oil hits 20-month low, nearing $55 a barrel

* Copper, aluminium hit 3-year lows

NEW YORK, Nov 12 - U.S. crude oil traded at 20-month lows and key industrial metals slumped to a three-year bottom on Wednesday as analysts questioned the ability of governments to handle the global credit crisis.

The dollar continued to rally against other leading currencies, making it more disadvantageous to use foreign exchange to buy dollar-denominated commodities.

The stronger dollar weighed on prices of soft commodities like coffee, cocoa and sugar, although grains such as corn and wheat recovered from early lows on technical buying.

The Reuters-Jefferies CRB index of 19 commodity futures fell 1.7 percent, hovering near five-year lows.

Stocks on Wall Street took a pounding after the U.S. Treasury signaled it will use most of a $700 billion fund approved by Congress to inject money directly into cash-starved banks, instead of buying their toxic mortgage debts as originally planned.

"We have better use for the public money than buying assets or loans that should never have been created in the first place," said Howard Simons, strategist at Chicago's Bianco Research.

The World Bank said global trade may decline next year for the first time in more than a quarter century as the credit crisis reduces trade financing. It also expected its lending to increase to $35 billion this year from the $13.5 billion last year as more countries sought its help.

But analysts questioned just how much help governments could give.

"The U.S.' financial resources are already stretched and a flood of new demands may overwhelm a government already staring down at a record budget deficit next year," UBS economists said in a note.

U.S. crude on the New York Mercantile Exchange, or NYMEX, fell as much as 5 percent, or $2.98, to $56.35 a barrel by 1740 GMT, its lowest level since March 20, 2007.

The bearish tone was set by the International Energy Agency's caution that a slowing world economy may force it to cut further its forecast for oil demand growth when it releases its monthly report Thursday.

Turmoil in global financial markets has already led the IEA, which advises many of the biggest economies on energy policy, to cut its assumption for 2008 world oil demand growth to a 15 year-low of just 440,000 barrels per day.

Bullish IEA projections, as well as unprecedented demand for commodities from a weak dollar and easy credit, had helped propel U.S. crude to a record high above $147 a barrel in July.

Among industrial metals, copper and aluminium prices hit their lowest levels since 2005 in New York and London trade.

Copper for delivery in three months on the London Metal Exchange settled down $19 at $3,621 a tonne after sinking to a more than three-year low of $3,570. LME copper had reached an all-time high of nearly $9,000 a tonne in July.

U.S. copper for December delivery fell as much as 2.70 cents to hit a session low of $1.6210 a lb on NYMEX's COMEX metals division before recovering on technical support. In July, COMEX copper had hit a record above $4 a lb.

LME aluminium settled down $23 at $1,925 a tonne after sliding to a three-year low of $1,911.

In precious metals, U.S. gold futures for December fell as much as $21.30 to a session low of $711.50 an ounce. In March, COMEX gold had traded at a record above $1,000.