Oil leaps on Iran fears, grains dip before USDA data

NEW YORK (Reuters) - Oil prices surged on Thursday as tensions between Iran and the West stoked concerns over crude supply, while a weaker dollar helped metals and soft commodities rebound from the sharp selloff of the previous session.

Grains markets bucked the trend after technical selling and fund liquidation ahead of a government stocks report pressured prices. Corn fell for a fourth straight day, hitting a three-month low, and wheat sank to a 2-1/2-month bottom.

Gold rose more than 1 percent, on track for its biggest daily gain in two weeks.

Iran and Israel fired verbal volleys that sent fear into energy markets, helping oil prices chart their highest one-day gain in nearly two months.

Risk appetite grew in other commodity markets as the euro rebounded from a two-week low against the dollar after Spain unveiled its 2013 budget.

Hopes for Chinese government action to bolster the country's slowing economic growth and a drop in U.S. jobless claims [ID:nCATRKE89B] helped push up stocks on Wall Street .N, further bolstering oil and metals prices.

The Thomson Reuters-Jefferies CRB index .CRB, a global benchmark for commodities, jumped more than 1 percent and was on course to recoup its loss from Wednesday, when it hit a six-week low.

Ten of the 19 commodity markets tracked by the CRB rose more than 1 percent, and arabica coffee led the way with a 3 percent jump.

TENSIONS BOLSTER OIL

Oil prices rose about 2 percent. Brent crude in London scaled an eight-day high of $112.49 a barrel before settling at $112.01. U.S. crude in New York closed at $91.85 a barrel. <O/R>

"Nothing has improved in the relationship between Iran and Israel and there is unpleasantness throughout the Middle East," said David Morrison, analyst at GFT Global. "The danger is that we have a nasty flare-up."

Israeli Prime Minister Benjamin Netanyahu drew his "red line" for Iran's nuclear program - the point at which Iran has amassed nearly enough highly enriched uranium for a single atomic bomb - and voiced confidence that the United States shares his view.

Iranian President Mahmoud Ahmadinejad said Tehran was capable of "neutralizing" all efforts to sabotage its nuclear facilities.

COPPER RISES

Three-month copper on the London Metal Exchange rose from the previous session's two-week low, gaining $55 to close at $8,175 a tonne.

U.S. copper's most-active futures contract, December, settled up nearly 1 percent at $3.7440 a lb.

Data showed orders for long-lasting U.S. manufactured goods fell sharply in August, suggesting the main engine of economic growth was stalling, and pointing to continued prospects of measures to support the economy.

Stimulus measures already announced by the U.S. Federal Reserve and the European Central Bank have helped put copper on track for a gain of more than 7 percent for September. Year-to-date, it is up nearly 8 percent. <MET/L>

COFFEE JUMPS, CORN SLUMPS

Prices of arabica coffee traded in New York marked their highest gain in more than two weeks, fueled by the broad rally in commodities and attempts by top coffee producer Brazil to withhold supply.

December arabica finished up 4.85 cents, or 2.9 percent, at $1.7430 per lb. The spot contract is on track to close the third quarter up 2.5 percent, its biggest quarterly gain since the first quarter of 2011. <SOF/L>

Chicago's grains markets continued their selloff from Wednesday, accelerating their retreat from a two-month rally fueled by the worst U.S. drought in five decades that decimated crops.

Corn futures for December delivery on the Chicago Board of Trade ended down 1.2 percent at $7.16-1/4 a bushel.

CBOT's December wheat fell 1.6 percent, closing at $8.55-1/2 a bushel.

Trading volumes were light as investors squared positions ahead of Friday's quarterly report on domestic grain stocks from the U.S. Department of Agriculture. <GRA/>

(Editing by Dale Hudson and Alden Bentley)