April 12, 2011 / 12:50 AM / 8 years ago

Commodities tumble from record peaks; yen up

LONDON (Reuters) - Global share prices slipped on Tuesday while commodity prices tumbled from record peaks after a Goldman Sachs report advised investors to lock in profits before oil and other commodity markets reverse.

A man is reflected on an electronic board displaying exchange rates in a business district in Tokyo March 28, 2011. REUTERS/Toru Hanai

Retreating commodity prices weighed on global equities, sending MSCI’s main world equity index down 0.7 percent by 10:25 a.m., on track for its biggest one-day fall in four weeks.

The FTSEurofirst 300 index .FTEU3 of top European shares slipped 1.2 percent, with miners and energy firms among the heaviest losses. Emerging markets .MSCIEF, which count several resource-exporters among their ranks, fell 1.3 percent.

The bout of profit-taking that knocked Brent crude off Monday’s 2-1/2 year highs was triggered by a report from long-term commodity bull Goldman Sachs (GS.N), which warned its clients that oil and other raw material prices could retreat after strong recent gains.

Spot gold retreated from Monday’s record peak while silver sagged from the previous session’s 31-year high.

Market sentiment was also hit by Japan’s move to raise the severity of radiation leakage at its stricken Fukushima nuclear plant, putting it on a par with the worst nuclear disaster at Chernobyl, and its warning that the economic damage could be worse than initially thought.

The failure of U.S. aluminium producer Alcoa Inc (AA.N) to meet analysts’ revenue forecasts added to investor uncertainty over the first-quarter earnings.

Heightened risk aversion prompted investors to unwind carry-trade positions utilising the Japanese yen as a low interest-rate currency to buy higher yielding assets.

“The sharp pickup in speculator demand for yen-funded carry trades (over previous weeks) leads to a greater risk of correction if risk aversion picks up in the near-term. However we still think the yen is on a weakening trend,” said Lee Hardman, currency analyst at BTM-UFJ.

The yen had slid since the Group of Seven (G7) countries sold the currency last month in their first joint intervention in more than a decade after the currency spiked to record highs days after last month’s massive earthquake and tsunami.

Expectations that the Bank of Japan will keep policy loose to help the economy recover is likely to curb the yen’s gains.

However, the steadier yen offered the dollar some respite, allowing the greenback to firm against a basket of major currencies .DXY to rise further from Friday’s 16-month low.

The downward trend for the dollar is also seen intact.

Two of the Federal Reserve’s most powerful officials, Janet Yellen and William Dudley, said the U.S. central bank should stick to its super-easy monetary policy as inflation was not a threat and unemployment remains too high.

Diverging monetary policy direction among the world’s major central banks is likely to remain an investment theme in the coming months.

A below-forecast UK inflation reading in March knocked sterling to a 5-1/2 month low against the euro.

The June Bund future rose 35 ticks while emerging sovereign spreads widened 3 basis points to trade at 251 bps over U.S. Treasuries.

Additional reporting by Neal Armstrong; Editing by Catherine Evans

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