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NEW YORK Oil jumped to 2-1/2 year highs on Friday on more violence in Libya, and more expensive crude sparked inflation worries that drove up gold but pressured copper and agricultural commodities on fears economic growth would slow.
Corn, wheat and soybean prices felt the weight of increased energy costs, as investors fretted that the impact of higher energy prices might filter through to other economic sectors at a time when growth was finally starting to take off.
With crude prices continuing to rise, some investors sought safety in gold as an inflation hedge, though it fell short of the record set Wednesday at $1,440.10 an ounce.
By Friday's close, the Reuters Jeffries CRB index .CRB of 19 commodities had risen rose 0.64 percent as oil and gold, cocoa strengthened, but the upside was limited by declines in base metals and agricultural components like corn and coffee.
U.S. crude oil futures rose for the third day in four, as fierce fighting between loyalists to Libya's Muammar Gaddaffi and rebels seeking to oust him from power raised more fears of supply disruptions.
On the New York Mercantile Exchange, crude for April delivery settled at $104.42 a barrel, gaining 2.46 percent to its highest since the September 26, 2008 close. Brent crude futures for April delivery rose to settle at $115.97 a barrel, having reached a high of $116.49.
"Tension in the Middle East is like a runaway train," said Michael Hewson, analyst at CMC Markets in London. "Once it starts, it's very difficult to stop. If there is a danger that it impacts the supply chain, people will get nervous."
Investors feared extended supply disruptions as rebels fought Libyan security forces in Ras Lanuf, a major oil terminal, and as fighting broke out in Bahrain and Yemen and top-exporter Saudi Arabia, where Saudi Shi'ites staged protests on Thursday.
Libyan Deputy Foreign Minister Khaled Kaim said forces loyal to Muammar Gaddafi controlled the oil town of Ras Lanuf, after rebels said it was in their hands.
FLEETING PAYROLLS IMPACT
Earlier, the healthiest U.S. employment report in nine months helped oil along with copper and other commodities, but its effect was fleeting in the face of escalating violence in Middle Eastern oil producing countries.
Non-farm payrolls jumped by 192,000 in February and the two previous months were upwardly revised. The unemployment rate fell to 8.9 percent, its lowest since April 2009.
"We have moved into the expansion phase of the economic cycle and the economy is self-sustaining," said Brian Levitt, an economist at OppenheimerFunds in New York.
But the improved labor market, along with higher oil prices, added to fears of a pick up in inflation.
Investors seeking gold as both a safe haven and a guard against inflation sent prices up above $1,430 an ounce and silver up 3 percent to 31-year highs. The yellow metal notched its fifth consecutive weekly gain on fears that Libya's escalating unrest could spread across the Arab world.
"It's really all about oil, and I suspect that's going to be the pattern next week as well," said Bill O'Neill, partner of LOGIC Advisors.
Industrial metal copper backed away from a near three-week high to end lower, as rising oil prices and escalating violence in North Africa eclipsed initial euphoria from upbeat U.S. employment data.
PRICE FEARS HIT AGRICULTURALS
Increasing threat of inflation pressures triggered a round of profit taking in most agricultural futures markets. In the case of U.S. cocoa futures the selling came after it set its latest 32-year high and with coffee a 34-year peak.
Before the round of profit taking sent prices lower, a virtual civil war in top cocoa producer Ivory Coast powered cocoa futures and a shortage of high-quality beans spurred arabica coffee.
U.S. corn futures were set back on profit-taking after extending a 32-month high, but the market still posted its fifth straight weekly rise as U.S. supplies remained tight.
Soybeans were choppy, rallying late on concerns about labor unrest at ports in Argentina and harvest delays in Brazil. Earlier, however, the market fell sharply after private analysts raised estimates for the South American soy crop.
Wheat also recovered late in the day, on concerns about tight supplies of high-quality milling wheat.
(Reporting by Carole Vaporean; Editing by David Gregorio)