Stocks rally amid sell-off in commodities

By Herbert Lash

NEW YORK (Reuters) - Gold and oil fell sharply on Thursday as investors dumped commodities and lifted U.S. stocks to big gains on the view that inflation could moderate if the selling pressure in futures markets continues.

The dollar jumped to a week-high against the euro as investors fleeing commodities repatriated their cash into the beleaguered U.S. currency. A sagging dollar this year has given a major lift to commodities denominated in the U.S. currency.

Treasury debt prices mostly slipped but the shortest-dated government instruments rallied again amid a powerful safe-haven bid on the exodus out of commodities.

European stocks pared losses, bolstered by gains on Wall Street following a better-than-expected survey on factory activity in the U.S. mid-Atlantic region. But commodity-related stocks and banking shares kept indexes in negative territory.

Oil initially fell below $100 a barrel for the first time in two weeks, extending a hefty sell-off the previous day on growing concerns that a slowdown in top consumer the United States would undermine global demand for energy.

"We continue to see profit-taking among commodities. There are also macro-economic concerns about the economy and the dollar has been doing better," said Mike Wittner, global head of oil market research in London for Societe Generale.

Oil, gold and other commodities had been hitting a series of record highs this year as investors took refuge in dollar-denominated assets amid the carnage in stock markets.

Crude oil CLc1 hit a record $111.80 a barrel on Tuesday and gold hit a record $1,030.80 an ounce on Monday. U.S. crude CLc1 settled down 70 cents to $101.84 a barrel after falling as low as $98.65 earlier, the first time below the $100 level since March 5.