COMMODITIES-Oil, metals extend losses as Fed comments spook investors

Thu Feb 21, 2013 8:26am GMT

* Federal Reserve may slow or halt bond buying -minutes

* Gold hits 7-month low, oil and copper at multi-week lows

* Shanghai, Tokyo commods fall between 2 pct and 5 pct (Recasts lead, adds comment, updates prices)

By Manolo Serapio Jr

SINGAPORE, Feb 21 (Reuters) - Oil and copper hit multi-week lows on Thursday and gold struggled to hold above its weakest level in seven months on concerns the U.S. Federal Reserve might pull the plug on its stimulus program sooner than thought.

Talk of a hedge fund liquidating positions also pushed down prices below key support levels as investors reassessed if bullish bets on the global economy were premature, with evidence of a rebound in raw material demand yet to emerge.

Commodities traded in Shanghai and Tokyo similarly slumped, with the Chinese also spooked by government efforts to extend property curbs and signs the central bank may be beginning a tightening cycle.

The Fed's comments were the "big driver" for the selldown, said Sijin Cheng, commodities analyst at Barclays Capital.

"The recent rally was mostly due to expectations about macroeconomic easing and potential demand increase, so any change in the prevailing macro sentiment would hit prices."

Several Fed officials think the U.S. central bank might have to slow or stop buying bonds before seeing the pickup in hiring the measure is designed to deliver, according to minutes of a policy meeting last month.

Brent crude for April delivery lost $1.27 to hit a three-week trough of $114.33 a barrel, adding to a fall of almost $2 on Wednesday.

U.S. crude touched a session low of $93.66, the weakest in just over a month.

Oil was among the hardest hit by Wednesday's sell-off. Hedge funds and other large speculators have nearly doubled their bets that oil prices will rise since mid-December, and have amassed positions in Brent and U.S. crude oil futures and options equivalent to around 440 million barrels of oil, regulatory and exchange data shows.

Oil "was on helium again and got ahead of fundamentals," said Tony Nunan, a risk manager at Mitsubishi Corp.

"But I think everyone is concerned because high frequency traders make the price moves more violent," he said, adding that Ichimoku cloud charts showed the next support level for Brent at $114.31.

'FALLING KNIFE'

Spot gold edged up 0.3 percent to $1,567.09 an ounce by 0746 GMT after falling to $1,554.49, its lowest since July 2012. Bullion slid 2.6 percent on Wednesday, its steepest one-day drop in about a year.

Expectations that the global economy may be on better footing this year due to positive indicators, from China to the United States, have dimmed gold's safe-haven draw.

But suggestions that the Fed might ease up on bond-buying have also cut its appeal as an inflation hedge, dragging the price below the $1,600 psychological support level.

Jeremy Friesen, commodity strategist at Societe Generale in Hong Kong, said any sell-off linked to fears that central banks may slow their stimulus programs could be short-lived.

"The United States and Europe are not in a strong enough economic position to really start tinkering with monetary policy just yet," he said.

Elsewhere, London copper fell 1 percent to $7,880 a tonne, the lowest since late December.

Soybeans led agricultural prices lower, coming off 1-1/2-week highs, also pressured by improved weather that may boost U.S. output.

Tokyo rubber futures fell 4 percent to near two-month lows and Shanghai copper, steel rebar and rubber dropped between 2 percent and almost 5 percent.

Chinese markets were also pressured by weaker equities amid fresh worries about monetary tightening and further property sector curbs.

Despite the steep price declines, traders say it may be too early for investors to get back into the market.

"The charts look quite bad and I don't think anyone is going to come in and try to catch a falling knife for now," said a trader with a commodities trading house in Singapore. (Additional reporting by Florence Tan; Editing by Clarence Fernandez and Himani Sarkar)

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