Investors shy as Fannie, Freddie plan lifts dollar

By Sambit Mohanty

SINGAPORE (Reuters) - Oil eased more than $2 on Monday before erasing losses and grains fell as Washington's move to rescue mortgage firms Fannie Mae and Freddie Mac lifted the dollar, prompting investors to reduce exposure in commodities.

While plans to cut output in China kept metal markets on tenterhooks, gold bucked the trend and hovered at its highest level in four months. Rubber weakened on improving supplies and palm oil took a cue from weak energy prices and fell 0.5 percent.

As the U.S. dollar inched up from near a record low against the euro, oil pulled back from a record high of $147.27 hit on Friday on security concerns in the Middle East and a looming strike in Brazil's oil industry.

But by midday, oil was little changed as the risk of supply disruptions wiped away early losses. U.S. light crude for August delivery slipped 6 cents to $145.04 a barrel by 0356 GMT after touching a session low of $142.49 a barrel.

"Oil's fall this morning is generally due to gains in the U.S. dollar as well as some profit-taking in the market," said Gerard Burg, a commodities analyst at the National Australian Bank in Melbourne.

"But there are still a lot of upside risks and there's nothing much to stop prices from heading towards the $150 mark in the coming weeks or months."

In an attempt to calm investors, the U.S. Treasury boosted direct credit lines to the firms that fund half of all U.S. mortgages, while the Federal Reserve said its direct lending window to financial firms was available to them.

In grain markets, corn on the Chicago Board of Trade fell, with the September contract down 24 cents, or 3.5 percent, at $6.67 a bushel. August soybeans SQ8 lost 34-½ cents to $15.81. September wheat fell 10 cents to $8.20-3/4.