COMMODITIES-Surging dollar sinks markets; oil, corn down 4 pct

Published: 01 Nov 2009 17:08:35 PST

* Oil and corn down nearly 4 pct; copper loses over 2 pct

* RJ/CRB index down more than 2 percent

* Dollar may outperform commodities if recovery is robust (Recasts, updates prices, market activity to settlement)

NEW YORK, Oct 30 - Commodities fell sharply on Friday, giving back virtually all the previous session's gains after an unexpected surge in the dollar triggered risk aversion and profit-taking across financial markets.

Oil and corn plunged almost 4 percent and copper fell more than 2 percent as the dollar gained ground against the euro.

"We're seeing profit-taking from those who bought yesterday," said David Sadler, a senior futures dealer for sugar in London.

The Reuters/Jefferies CRB index, a basket of 19 commodities, lost all of the 2 percent it gained on Thursday when the dollar fell steeply after third-quarter U.S. economic data signaled a resumption of growth.

(For a graphic on CRB/dollar correlation, click on http://graphics.thomsonreuters.com/109/US_CRBVUSD1009.jpg).

A weak dollar tends to boost commodities by making them cheaper for holders of other currencies, and also encourages investors to buy them as a hedge against potential inflation.

But on Friday, analysts said, mixed macroeconomic data out of the United States prompted investors to look at the dollar as a safer bet than commodities and equities.

The data showed the U.S. Midwest region enjoying stronger business activity since September, while consumer spending across the country fell and employment costs rose during the third quarter.

"The market is clearly confused," Daniel Brebner, an analyst at Deutsche Bank said. "You are getting good news followed by bad news, followed by mediocre news -- so directionally it's challenging to arrive at any kind of conviction."

Others said any significant recovery in the U.S. economy should technically boost the dollar, pressuring commodities.

"We would argue for a slight pause here before switching allegiances completely to the buy side (of commodities)," said Edward Meir, who follows base metals and energy for broker MF Global in New York.

If the U.S. economy recovers, Meir said, the Federal Reserve was likely to raise interest rates and roll back at least part of the stimulus programs that had ballooned the country's budget deficit -- all factors good for the dollar.

Crude oil's benchmark front-month contract in New York settled down $2.87 at $77 a barrel -- slipping further from the $80 level which had been a critical price lately for energy bulls. The contract gained $3 on Thursday to close just below $80.

Oil prices have more than doubled from the recession's lows of around $33 a barrel in January, although they are slightly over half of last year's record highs of nearly $150.

But even at around $80, some analysts think oil is overpriced, given that demand for energy has lagged recovery in other sectors. Total U.S. oil product demand, for instance, has dropped by about 3 percent from a year earlier.

In copper, New York's most-actively traded contract, December, finished down 7.40 cents, or 2.4 percent, at $2.9555 a lb -- well below Thursday's settlement of above the $3-per-lb psychological support.

Benchmark copper on the London Metal Exchange sank $184.50 to $6,480 a tonne.

Copper, like oil, suffers from demand problems. LME inventories of the metal, used in power and construction, stand near five-month peaks and traders report there is not much consumption of copper outside of China.

China imported record volumes of copper in early 2009 but has slowed down in recent months. Data this week showed a decline in September sales of newly built U.S. single-family homes, putting a further cloud on the demand for copper.

In the case of corn, the grain tumbled from the combination of a strong dollar and forecasts for clear skies across the Midwest next week that would allow farmers to speed up harvesting work, which has been progressing at its slowest pace in about 24 years.

U.S. corn futures' benchmark corn contract, December CZ9>, closed down 13-1/2 cents, or 3.6 percent, at $3.66 a bushel in Chicago trade.

," said Edward Meir, who follows base metals and energy for broker MF Global in New York.

If the U.S. economy recovers, Meir said, the Federal Reserve was likely to raise interest rates and roll back at least part of the stimulus programs that had ballooned the country's budget deficit -- all factors good for the dollar.

Crude oil's benchmark front-month contract in New York settled down $2.87 at $77 a barrel -- slipping further from the $80 level which had been a critical price lately for energy bulls. The contract gained $3 on Thursday to close just below $80.

Oil prices have more than doubled from the recession's lows of around $33 a barrel in January, although they are slightly over half of last year's record highs of nearly $150.

But even at around $80, some analysts think oil is overpriced, given that demand for energy has lagged recovery in other sectors. Total U.S. oil product demand, for instance, has dropped by about 3 percent from a year earlier.

In copper, New York's most-actively traded contract, December, finished down 7.40 cents, or 2.4 percent, at $2.9555 a lb -- well below Thursday's settlement of above the $3-per-lb psychological support.

Benchmark copper on the London Metal Exchange sank $184.50 to $6,480 a tonne.

Copper, like oil, suffers from demand problems. LME inventories of the metal, used in power and construction, stand near five-month peaks and traders report there is not much consumption of copper outside of China.

China imported record volumes of copper in early 2009 but has slowed down in recent months. Data this week showed a decline in September sales of newly built U.S. single-family homes, putting a further cloud on the demand for copper.

In the case of corn, the grain tumbled from the combination of a strong dollar and forecasts for clear skies across the Midwest next week that would allow farmers to speed up harvesting work, which has been progressing at its slowest pace in about 24 years.

U.S. corn futures' benchmark corn contract, December CZ9>, closed down 13-1/2 cents, or 3.6 percent, at $3.66 a bushel in Chicago trade.

(Editing by David GregorioP