COMMODITIES-Prices tumble after talk of hedge fund in trouble

* Rumor of commodity fund liquidation sparks broad selloff
* Gold hits more than a 7-month low after bearish Fed
minutes
* Silver down most in 2 months, copper hits 1-month bottom
* Gasoline, US crude oil each down 2 percent

By Eric Onstad and Barani Krishnan
LONDON/NEW YORK, Feb 20 (Reuters) - Commodities tumbled on
Wednesday amid speculation a hedge fund had been forced to
liquidate positions across metals and oil markets, and gold fell
to more than a seven-month low on worries that the U.S. economic
stimulus may soon dry up.
Already under pressure from ongoing concerns about global
supply and demand, commodity markets tumbled in high volume
trade just before 11 a.m. EST (1600 GMT), with oil and gasoline
prices dropping about 2 percent each.
Gold, under pressure all week from traders seeking riskier
investments as the outlook for the global economy improved, fell
to June lows. Losses deepened after the U.S. Federal Reserve
released the minutes of its January meeting, saying it may have
to slow or stop its asset buying program before it sees the
pickup in hiring that the program was to deliver.
Oil and other commodities were pressured by talk of a hedge
fund liquidating after it had been caught on the wrong side of
the market. Several firms were cited by traders as potentially
behind the moves, but none could be confirmed by Reuters.
"I think what happened today is more speculative selling
than anything else," said the manager of an oil-focused hedge
fund in Europe, who asked not to be identified.
"The markets that fell the most dropped about 2 percent
each. That's hardly enough to blow up a fund."
The stock market also slipped, with U.S. energy stocks
particularly falling on talk that that a troubled hedge fund was
selling assets.
"I heard the chatter about a hedge fund liquidating things
today, but how big? I don't know. Certainly it sparks concern,"
said Michael James, senior trader at Wedbush Morgan in Los
Angeles.
Gold wasn't the only commodity that took a pounding.
Silver had its sharpest decline in two months, while
benchmark industrial metal copper fell to a one-month low.
In oil, U.S. crude shed more than $2 a barrel.
The Thomson Reuters-Jefferies CRB index, a
commodities bellwether, fell 0.6 percent for its sharpest drop
in nearly 2 weeks. Twelve of the 19 markets it tracked settled
lower.
A Reuters chart of the CRB's moves showed the commodities
selloff accelerating between 10 a.m. and 11 a.m. EST (1500 GMT
and 1600 GMT) as news of the fund in trouble gathered pace.

SOME MARKETS DOWN IN HEAVY VOLUME
Some markets saw heavy trading on their way down. Volume in
silver was more than double the 30-day average. March,
the most-active silver contract on New York's COMEX, closed down
2.7 percent for its sharpest decline since Dec. 20.
Volume in gold was nearly 30 percent above the 30-day norm
as the spot price fell broke through support at $1,600 an
ounce.
Gold tumbled nearly 3 percent on Wednesday to its lowest
price since July after minutes of last month's Federal Reserve
meeting showed the central bank may have to slow or stop its
long-running stimulus program.
"People are taking a step back and asking themselves 'Is the
Fed going to stop quantitative easing earlier?'" said Axel Merk,
chief investment officer of Merk Funds, which manages $630
million in mutual fund assets.
Copper's benchmark three-month contract in London
slipped to its lowest level in more than a month, dragged down
by persistent demand concerns as post-holiday buying from top
consumer China remained subdued.
In oil, London's Brent crude closed below $116 a
barrel, down $1.92, on prospects of more Saudi supply, which
offset confidence that there will be more demand from an
improving global economy.
U.S. crude finished down $2.20 at below $95 a barrel.

RALLY AHEAD OF DEMAND?
Some analysts said this year's early rally in commodities on
upbeat economic data from the United States and China may have
got ahead of actual improvement in underlying demand.
The CRB rose 4.3 percent during January. But it has fallen
back during most of February, and has shaved its yearly gain to
only 0.5 percent.
"We're entering the demand destruction price zone - when you
start to have some fears about global demand," Olivier Jakob at
Petromatrix said, referring to oil prices.
A mixed reading of U.S. housing data on Wednesday added to
concerns about whether improvements in economic figures would
continue.

Prices at 3:29 p.m. EST (2029 GMT)
LAST/ NET PCT YTD
CLOSE CHG CHG CHG
US crude 94.85 -2.20 -2.3% 3.3%
Brent crude 115.20 -2.32 -2.0% 3.7%
Natural gas 3.279 0.007 0.2% -2.1%

US gold 1577.60 -26.00 -1.6% -5.9%
Gold 1561.96 -42.25 -2.6% -6.7%
US Copper 360.80 -4.15 -1.1% -1.2%
LME Copper 7960.00 -90.00 -1.1% 0.4%
Dollar 81.074 0.606 0.8% 5.6%

US corn 700.50 5.25 0.8% 0.3%
US soybeans 1482.75 12.50 0.9% 4.5%
US wheat 738.50 6.25 0.9% -5.1%

US Coffee 141.00 4.50 3.3% -1.9%
US Cocoa 2127.00 -2.00 -0.1% -4.9%
US Sugar 18.35 0.13 0.7% -5.9%

US silver 28.622 -0.800 -2.7% -5.3%
US platinum 1647.10 -50.40 -3.0% 7.0%
US palladium 736.40 -27.75 -3.6% 4.7%