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Traders of crude oil and natural gas react during early trading at the New York Mercantile Exchange on Friday. The economic fallout from a massive earthquake that struck off the east coast of Japan dipped oil below $100 for the first time this month. (Bebeto Matthews/Bebeto Matthews/AP)
Traders of crude oil and natural gas react during early trading at the New York Mercantile Exchange on Friday. The economic fallout from a massive earthquake that struck off the east coast of Japan dipped oil below $100 for the first time this month. (Bebeto Matthews/Bebeto Matthews/AP)

The close: Commodities mayhem Add to ...

Crude oil grabbed the spotlight on Thursday amid a dramatic slump in commodities that has sideswiped Canada's benchmark index this week and raised concerns about the bull market in stocks.

The Reuters/Jefferies CRB index of 19 commodities fell 4.9 per cent, marking the steepest nosedive since the commodities market began to recover more than two years ago.

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The declines were broad, affecting everything from aluminum and sugar, to corn and copper. Gold plunged to $1,481.40 an ounce, down $33.90. Its precious-metals cousin, silver , fell another 12.7 per cent, bringing its decline this week to 29 per cent, just days after touching a record high.

But Thursday's action was highlighted by the stunning reversal in crude oil, a commodity that is closely connected to economic activity and - in Canada, at least - stock market performance.

Oil fell to $99.80 a barrel in New York, down $9.44 and below the psychological threshold of $100. The slide hit Canadian energy stocks for the third straight day and dragged down the energy-intensive S&P/TSX composite index , which has been on a four-day losing streak.

It closed at 13,455.38, down 155.94 points or 1.2 per cent, bringing the total loss to nearly 490 points this week. In the United States, the Dow Jones industrial average closed at 12,584.17, down 139.41 points or 1.1 per cent. The broader S&P 500 closed at 1335.10, down 12.22 points or 0.9 per cent.

The declines have steamrolled upbeat news that greeted investors at the start of the week. The killing of Osama bin Laden was supposed to usher in a so-called peace dividend among global stocks. And it was hoped that Canada's Conservative Party majority win on Monday would lift support for Canadian oil sands producers.

"I can give you a whole bunch of reasons why oil is down," said Phil Flynn, senior energy analyst at PFGBEST, a U.S. trading and brokerage firm, pointing in particular to soft economic news such as rising U.S. jobless claims. "But you don't get this kind of a selloff on that kind of data."

"This is something much larger, and it is really central bank policy."

On Thursday, the European Central Bank held its key interest rate unchanged and signalled that future rate hikes were likely not in the cards, at least in the near term, marking an unexpected shift in monetary policy.

The move sent the U.S. dollar flying. The U.S. dollar index rose 1.5 per cent, its biggest one-day move in nearly seven months. Conversely, the Canadian dollar declined, falling to $1.03, down more than a cent. Since commodities are priced in U.S. dollars, they fell.

Earlier this week, India's central bank raised its key interest rate by half a percentage point, a bigger-than-expected hike that shows the country is getting tough on fighting inflation.

"There has been a gradual realization, which has been gaining attention over the past few days, that the emerging market economies are taking steps to slow growth," said Avery Shenfeld, chief economist at CIBC World Markets.

This is important, given that countries such as India and China have become massive consumers of key commodities as they modernize their economies and develop into manufacturing powerhouses.

 
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