COMMODITIES-Oil cuts loss, shadowing Wall St rebound; copper down

Thu May 23, 2013 5:35pm EDT

* Oil erases bulk of early loss, rebounding with US stocks

* Gold up after Fed official says no hurry to ditch stimulus

* Copper slumps on weak China manufacturing activity data

* Soybeans hits 8-month high; coffee, raw sugar up too

By Barani Krishnan

NEW YORK, May 23 (Reuters) - Oil tracked a recovery in U.S. stocks to erase the bulk of its early losses on Thursday but copper slumped, reversing gains from the previous session, after data suggesting weak manufacturing activity in top metals buyer China.

Gold rose as the dollar fell and after comments from a senior Federal Reserve official that the U.S. central bank was in no hurry to start winding down its stimulus for the economy -- which had been a pillar for high gold prices.

On the agricultural end, soybean futures rose for a sixth straight session, touching an eight-month high, as dwindling supply from the drought-plagued 2012 harvest sparked commercial demand. In soft commodities, arabica coffee and raw sugar rose on light buying after hitting multi-year lows previously.

The Thomson Reuters-Jefferies CRB index, a bellwether for commodity prices, settled little changed after slipping to a near week-low on Wednesday. Wheat and arabica coffee led gains on the 19-commodity CRB, rising about 2 percent. Cocoa and cotton were among the bigger decliners, losing about 2 percent.

OIL REBOUNDS WITH WALL STREET STOCKS

In oil, benchmark Brent crude rebounded from a three-week low hit early on Thursday by riding the coattails of a turnaround in U.S. equities.

Wall Street stocks ended lower but sharply off their session lows, overcoming worries about weak Chinese manufacturing data and the prospects of the Federal Reserve reducing its monetary stimulus.

"Equities are holding in pretty well, and the market's in an uptrend with equities, but nothing else has fundamentally changed," said Bill Baruch, senior market strategist at iitrader.com in Chicago, Illinois.

"There's a large short position in the market and the funds are covering positions before the holiday weekend," he added, referring to the forthcoming Memorial Day holiday in the United States.

Brent crude settled down 16 cents at $102.44 a barrel, recouping losses of nearly $2 after earlier reaching $100.64, its lowest price since May 2. Prices are still down sharply from a 2013 high of $119.17 reached on Feb. 8.

U.S. crude ended nearly flat, down 3 cents to $94.25 and even briefly going positive in post-settlement trading. It had earlier lost more than $2 in intra-day trading.

GOLD RECOUPS WEDNESDAY LOSS

Gold recouped Wednesday's losses after the president of the Federal Reserve Bank of St. Louis James Bullard said he did not think the Fed was "that close" to starting the process of winding down its stimulus for the U.S. economy.

The spot price of gold was up 1.2 percent at $1,389 an ounce by 2100 GMT. It lost more than 1 percent in the previous session after Fed Chairman Ben Bernanke said a decision to reduce the central bank's bond-buying programme could be taken in the 'next few meetings.'

"The market is still digesting Bernanke's comments, which took everybody by surprise... but today Bullard went a little bit in the other direction saying that tightening wouldn't come that quickly and I think that is lending support," Danske Bank analyst Christin Tuxen said.

The dollar index fell more than half a percent against a basket of currencies, mostly due to a rally in the yen. Currency markets paid little heed to data showing a larger-than-expected drop last week in the number of Americans filing new unemployment benefits.

COPPER WOBBLES ON CHINA

Copper prices slid over 3 percent after a preliminary survey of purchasing managers showed a fall in Chinese factory orders that added to concerns that a recovery in the world's second-largest economy was sputtering.

China is the world's biggest consumer of industrial metals, taking 40 percent of the global supply of refined copper.

Benchmark three-month copper on the London Metal Exchange closed down $174 at $7,300 a tonne, after hitting a session low of $7,215.

On Wednesday, LME copper had rallied to a six-week high of $7,533.75 on continued production outage at Indonesia's Grasberg copper mine after a tunnel collapse that killed 28 workers at the world's second-largest copper mine.

But in Thursday's session, copper wobbled after the HSBC Purchasing Managers' Index for China showed factory activity shrank for the first time in seven months in May.

"I think that's what's turned sentiment because yesterday things were looking a lot stronger for copper," Barclays analyst Gayle Berry.