COMMODITIES-Grains lead retreat as growth worries revive

Mon Aug 13, 2012 6:15pm EDT

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NEW YORK, Aug 13 (Reuters) - Pumped up grain prices led a broad retreat in commodity markets on Monday as downbeat economic signals from Japan and China weighed on riskier markets.

Copper prices fell more than 1 percent and gold dipped, while London crude oil pulled back from a more than three-month high as anxiety over raw materials demand dampened a rally spurred by jitters over an intensifying debate in Israel on whether to strike Iran's disputed nuclear program.

The downbeat mood was set early in the day after data showed Japan's gross domestic product expanded just 0.3 percent in the second quarter, half as much as expected, while Chinese trade data showed a drop in copper imports. Industrial output also grew at its slowest pace in three years in July.

"There seems to be a general tone of weakness across a number of markets due to some weaker economic data, in particular the disappointing Chinese data," said Gayle Berry, an analyst at Barclays Capital.

The Thomson Reuters-Jefferies CRB index of 19 commodities fell 0.9 percent, dropping for a second day after briefly touching a more-than-three-month high last week. U.S. stocks dipped and European shares saw their worst loss in over a week.

But as with all downbeat indicators lately, some traders saw reason for commodities to rally based on signs that central bank stimulus will push more money into riskier markets.

"The world seems overtly pessimistic about economic activity," said Dennis Gartman, a commodities trader and publisher of The Gartman Letter.

"The Chinese will soon be cutting both their reserve requirements and interest rates, and I think it's only a matter of time, maybe a week or two, before the ECB is asked by the Spanish to support the Spanish bond market."

OIL BUCKS

Several factors helped oil prices buck the negative macro mood, including worries that a sharp drop in North Sea oil production next month will squeeze benchmark supplies. Output is set to fall about 17 percent versus August due to maintenance.

Brent September crude, which expires on Thursday, rose 65 cents to close at $113.60 a barrel, the highest settlement since May 3. The front-month price spread widened to as much as $2.02 LCOc1-LCOc2 during the day, a 2012 high.

The North Sea output drop comes with the European Union's embargo on Iranian oil in its second month as the West's dispute with Iran over Tehran's nuclear activities drags on.

Remarks by Prime Minister Benjamin Netanyahu on Sunday, stating that most threats to Israel's security were "dwarfed" by the prospect that Iran could develop nuclear weapons, kept fears about potential supply disruptions in focus.

GRAINS SINK

In Chicago, late-season rains offered a glimmer of hope for the maturing soybean crop, helping drive prices more than 2 percent lower. Corn also dropped as the harvest drew near.

Wheat prices extended their two-day decline to 6 percent as news of a new Russian export deal with Egypt helped sooth worries that Moscow might reinstitute an export ban.

After the close, the U.S. Department of Agriculture said 30 percent of the U.S. soybean crop was rated in good to excellent condition, up 1 percentage point from the previous week.

Copper also fell, extending its decline to more than 12 percent since the beginning of May. The market was hit by mounting fears of deteriorating economic outlooks in top metals consumer China, the euro zone and the United States. (Editing by Jim Marshall)

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