Gold jumps, oil pares loss on Fed action

LONDON (Reuters) - Gold's safe-haven qualities shone out on Tuesday as the market jumped, bucking an earlier trend of falling commodities, after the U.S. Federal Reserve stunned markets with a surprise rate cut by 75 basis points.

Spot gold rebounded from a three-week low of $849.50 per ounce to trade above $870 after the Fed move.

Crude oil cut losses to trade around $88 a barrel.

In base metals, London Metal Exchange copper sagged to a three-week low despite the U.S. central bank action.

The Fed slashed rates to 3.5 percent, while U.S. Treasury Secretary Henry Paulson said the move was constructive and should help boost confidence amid volatile financial markets.

The resulting dollar falls versus the euro caused gold prices to jump, as a weaker dollar makes gold cheaper for non-U.S. investors.

Investors were not convinced, however, that the Fed's move would necessarily be enough to steady sentiment in financial markets.

"The Fed is clearly convinced they need to do everything to prevent a recession rather than worry about inflation. Whether they will be successful in three months I don't know," said John Haynes, strategist at Rensburg Sheppards Investment Management.

Commodities had been down across the board, with a tumble in oil reflecting waves of selling that swept across riskier assets, including stocks, as investors worried about the risk of a U.S.-led economic slowdown.

RECESSION CLOUDS GATHER

Copper for three-months delivery on the London Metal Exchange fell to $6,675 per tonne, its lowest since December 31, as worries about demand continued to haunt investors.

"The markets are saying that it's probably too late to avoid a major economic slowdown. Asset markets are re-pricing from a fast growing economy globally to a slow growing economy and difficult conditions in the U.S.," said Ashok Shah, chief investment officer at fund manager London & Capital.

Shah added however that those commodity markets with bullish underlying long-term fundamentals, including oil and softs, should find their feet after a short-term correction.

"Temporarily it's time to absorb a correction, but fundamentally the longer-term trend points to more demand for soft commodities. On the hard commodities, fears of a recession will make things correct shorter term," he added.

Base metal enthusiasts clung to customs data showing demand from major consumer China remained strong, with its refined copper imports up 16.5 percent on the year to 111,685 tonnes in December and 1.49 million tonnes in 2007, up 80.6 percent.

Analysts say China's seemingly insatiable appetite for raw materials should prevent sharp falls in industrial commodities, while agricultural products would be supported by strong demand from the biofuel and food sectors.

(Additional reporting by Sambit Mohanty in Singapore and Atul Prakash in London; editing by Chris Johnson)