UPDATE 1-COMMODITIES-Fed action sweeps metals, oil to multi-month highs
* Weak dollar, Fed's indefinite stimulus pledge fuels rally * Copper, oil at 4-month highs; gold at 6-month peak By Barani Krishnan and Eric Onstad NEW YORK/LONDON, Sept 14 (Reuters) - Copper, gold and oil surged to multi-month highs on Friday after the U.S. Federal Reserve's move to stimulate the world's top economy spurred expectations for a fresh wave of investment flows into commodity markets. Many analysts were cautious, however, about sustained price gains in some sectors like industrial metals unless physical demand picks up. The Fed said it will buy $40 billion worth of mortgage debt a month until the U.S. jobs market improves, fueling a rally in risky assets that have suffered for months from uncertainty on the global economic outlook. The dollar index touched a four-month low, making it cheaper for holders of other currencies to buy commodities prices in dollars. Copper futures and Brent crude oil in London both hit four-month highs as global stocks surged to a 13-month peak. Gold surged to a six-month high, while grains performed more modestly. The bellwether 19-commodity Thomson Reuters-Jefferies CRB index hit its highest level since early March. Investors cheered the Fed decision to make its third round of quantitative easing -- dubbed QE3 -- indefinite. Fed Chairman Ben Bernanke said the central bank will keep up with bond purchases until it is able to bring down the unemployment rate, currently at 8.1 percent. "The Fed will be indirectly adding more liquidity into the asset markets and that money will need to go somewhere and part of it will go into commodities," said Olivier Jakob, at Petromatrix in Zug, Switzerland. The positive impact of the Fed's policy move, however, unless backed by a recovery in demand and economies in Europe and China, could prove fleeting, other analysts say. "The Fed's move is certainly bullish for commodities, but I don't think we want to assume that the bullishness in commodities is as open ended as the QE3 program itself," said Vishnu Varathan, market economist at Mizuho Corporate Bank. "The decisive thing is going to be a question of how things in the euro zone and China will pan out because if China's demand doesn't recover as quickly then a lot of this euphoria is going to fade." MIDDLE EAST PREMIUM FOR OIL Other stories that could decide the narrative in commodities include violence in the Middle East, which has the oil market in its grip, and extremities in crop weather, which have already sent U.S. soybean prices to record highs. These factors weren't present during earlier QE rounds by the Fed in 2008 and 2010. Escalating anti-U.S. protests over a film demonstrators consider blasphemous to Islam kept the geopolitical risk of oil supply disruption in North Africa and the Middle East in focus on Friday, along with the dispute over Iran's nuclear program. "The Middle East premium is starting to be thrown into the oil price a little bit, adding about $5 to the price," said Jonathan Barratt, chief executive of BarrattBulletin, a Sydney-based commodity research firm. Brent crude rose for a seventh straight session, peaking at a May high of $117.95 a barrel before paring gains to below $117, or up about 0.6 percent on the day. U.S. crude futures hit a four-month high of $100.42. COPPER BIGGEST GAINER Base metals were the biggest gainers among major commodities, with three-month copper on the London Metal Exchange rising as much as 4 percent to $8,408 a tonne, its loftiest since early May. U.S. copper futures' key December contract in New York rose more than 3 percent to above $3.83 a lb, and headed for a weekly gain of over 5 percent. Lead and zinc surged to their highest levels in more than six months and aluminium hit a 5-1/2 month high. Attention would now turn to top metals consumer China, which accounts for 40 percent of copper demand, analysts said. "We would caution that we remain very skeptical of the longer-term implications of this. There is a likelihood that the price gains will not be sustained and prices will fall back again as the demand situation is still very poor," said Ross Strachan, economist at Capital Economics. Gold was on target to extend its winning streak to a fourth straight week. Many analysts also expect a correction in gold prices in the short term, but are still optimistic about a market rebound before the year-end. Spot gold rose 0.6 percent to a 6-month high of $1,777.51 an ounce. It rose 2 percent on Thursday. "After the move we had, not just yesterday, but over the last two or three weeks I think it would be natural to look for a period of consolidation," said Tom Kendall, an analyst at Credit Suisse in London. "But certainly going into the back end of this year, I would be looking for gold to be getting towards at least the $1,850 level." LESS EXCITEMENT IN GRAINS; WHEAT OUTPERFORMS Grains markets were comparatively quiet, with corn, soybeans and wheat prices having rallied far earlier than most commodities due to the drought that ravaged the U.S. Midwest farm belt and destroyed much harvest potential. Wheat outperformed the pack, with the December futures contract in Chicago rising 2 percent to above $9.20 a bushel. Soybeans, which hit record highs of nearly $17.90 a bushel earlier this month, fell in Friday's session, with November futures a touch lower at below $17.50 as harvest picked up for the crop. "I think we're at reality now where we're at harvest," Don Roose, president of Iowa-based U.S. Commodities, said, referring to soybeans. In softs, arabica coffee extended gains to hit a seven-week high, as softs were swept up in the commodities rally reacting to the Fed's stimulus plan. Raw sugar traded above 20 cents for the first time this month, while cocoa futures were also higher, in line with riskier assets from shares to commodities.
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