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Commodity markets jump on demand hopes Add to ...

Commodities rebounded forcefully Wednesday from sharp losses the previous session as demand hopes and supply snags drove up oil, metals and crop prices.

The Reuters Jefferies CRB index, one of the broadest measures of commodities as an asset class, settled up 1.6 per cent for its strongest gain since Dec. 31. All 19 markets tracked by the CRB rose, including gold, which snapped four straight days of declines.

Traders cited a persistently strong demand outlook for commodities despite worries about high energy and food prices.

Traders said other factors in the rebound were Algeria's speeding of wheat imports, President Obama's call for lower U.S. corporate taxes and the Federal Reserve's decision to keep buying government debt. Investors on Thursday were expected to look at weekly U.S. jobless claims for clues about the demand outlook.

"The picture remains the same as the day before yesterday," said Rodrigo Costa, a senior dealer in soft commodities such as cocoa, sugar and coffee at Newedge USA in New York.

"The collapse (in the previous session) had to do with the macroeconomics," he added.

On Tuesday, the CRB slid 1.5 per cent, its sharpest decline in three weeks, after India's latest interest hike. India has raised interest rates seven times since March to try and curb demand for energy and food and rein in spiraling inflation in one of Asia's biggest commodities consumers.

Anti-inflation measures in the world's most populated countries, including No. 2 economy China, had cooled commodity markets this year after they rallied the last two quarters. The CRB is flat year-to-date, falling in eight of the 17 sessions so far for January, after rising 29 per cent through the third and fourth quarters.

In Wednesday's session, U.S. crude oil rose more than 1.5 per cent to settle above $87 a barrel, the day after President Obama urged lawmakers in his State of Union address to work with him to cut the corporate tax rate and simplify the tax code. Analysts said the move could boost corporate profits, which in turn could create demand for energy.

Investors in oil were also encouraged by Fed policymakers, who said at the end of a two-day meeting they would press on with a plan to buy $600-billion in government debt to further stimulate the economy.

In metals, U.S. copper futures rose almost 1 per cent to finish above $4.26 a lb. Tin on the London Metal Exchange raced to its fourth record high in as many days, aiming for the $29,000-a-tonne mark, due to scarce supplies from top exporter Indonesia.

Among crops, U.S. wheat futures leaped 2 per cent to end above $8.56 a bushel, their highest price since August 2008, on surging demand, especially from North African countries where soaring food prices were sparking civil unrest. It was the seventh straight day of gains for wheat, marking its longest winning streak in nearly three years.

U.S. cocoa scaled a 1-year top, finishing above $3,350 a tonne, fueled by news that sales of cocoa products from top grower Ivory Coast have virtually stopped due to the violent political impasse in the African nation.

Meanwhile, gold also rose Wednesday, snapping a four-day losing streak, after the Federal Reserve's lukewarm economic assessment and its plan to complete its bond-buying program boosted bullion's safe-haven appeal.

The metal recovered from a three-month low earlier in the day after news showing a record outflow from the world's largest gold-backed exchange-traded fund weighed down on sentiment.

In a statement following its policy-setting meeting, the Fed said that economy is recovering but not sufficient for a significant improvement in labor market conditions, and that justified its $600 billion bond-buying program.

"There have been a lot of optimism weighing down on the gold market. To some degree, the Fed statement put some dampening on the stock rally and brings some buying back into the metal," said Frank McGhee, head precious metals trader of Integrated Brokerage Services.

Spot gold rose 0.5 percent to $1,339.92 an ounce by 3 p.m. EST. U.S. gold futures for February delivery settled up 70 cents at $1,333 an ounce prior to the Fed.

Silver gained 2.1 percent at $27.40 an ounce.

 

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