LONDON Brent crude oil was set for its biggest three-day slide in four months on Monday, while gold rose as Japan battled to avert a nuclear disaster after Friday's earthquake prompted a sell-off across most commodities.
U.S. natural gas futures rose to two-week highs on expectations Japan will have to resort to alternatives to nuclear power after the country's biggest recorded earthquake and ensuing tsunami, which is feared to have killed thousands of people, crippled an atomic power plant north of Tokyo.
The price of copper, the backbone of the electrical and electronics industries, and platinum, used in catalytic converters for diesel-powered vehicles, held near two-month lows as major Japanese manufacturers such as Toyota (7203.T) and Sony (6758.T) suspended production.
Japan's worst disaster since World War Two eclipsed the violence in Libya, which has helped pushed gold to record highs this month and crude oil to 2-1/2 year peaks, as rebels battled troops loyal to Muammar Gaddafi for key oil ports.
"Japan is another risk element in a plethora of events which have been important in the minds of investors in the past quarter," said Deutsche Bank analyst Daniel Brebner.
"You have the Middle East/North Africa situation, the peripheral euro zone debt issues which seem to be re-emerging, there are questions with respect to China raising interest rates near term, and there are municipal issues in the United States, particularly on debt."
Even though Libya's civil war was choking its oil exports, April Brent crude futures fell as much as 2.4 percent to $111.16, the lowest price since February 25. It was trading down 1.2 percent at $112.49 a barrel by 1200 GMT, as the market expected demand from Japan, the world's third biggest energy consumer, to suffer.
MIDDLE EAST TURMOIL
France stepped up efforts on Monday to persuade world powers to impose a no-fly zone over Libya, formerly Africa's third largest oil producer, as Gaddafi's troops battled rebel fighters for control of the strategic oil town of Brega.
The price of U.S. natural gas rose 1.6 percent on expectations that Japan will need to buy significant amounts of fuel to compensate for the loss of an estimated 9,700 megawatts (MW) of nuclear power generating capacity after the 8.9-magnitude quake on Friday.
"This new crisis adds to the geopolitical/oil crisis already in the background of global markets. This should contribute to global risk aversion in the near future," said Societe Generale in a research note. A second blast on Monday rocked the nuclear plant in Fukushima, where authorities have been working desperately to avert a meltdown.
Roads and rail, power and ports have been crippled across much of the northeast of Japan -- the world's largest buyer of corn -- and estimates of the cost of the disasters have leapt to as much as $170 billion, triggering a warning from analysts that the country's fragile economy could return to recession.
The central bank pumped emergency cash into the financial system, while Japanese stocks staged a 6-percent fall, their steepest since the height of the global financial crisis in 2008. <FRX/>
A surge in the yen, possibly from Japanese firms repatriating funds to cover the cost of damage to plants and factories, sent the nation's currency to its highest since mid-November earlier in the day, driving the dollar down and gold up for a second day.
Spot gold, which has risen by 1 percent this month, was last up 0.6 percent at $1,425.70 an ounce, just 1.7 percent off last week's record high of $1,444.40, while the premium for bullion bars in Tokyo touched one-month highs.
"Some investors expect some of the Japanese insurance companies to start selling their dollar assets to raise money. Perhaps gold could be boosted as an alternative currency itself," said Ong Yi Ling, investment analyst at Phillip Futures in Singapore.
The price of platinum fell by more than 1 percent to hit its lowest since mid-January, below $1,740 an ounce, under pressure from prospects of lower demand from the car industry.,
In base metals, three-month copper on the London Metal Exchange reversed early losses of about 1 percent to trade at $9,210 a tonne, up 0.2 percent.
"(Copper is) taking direction very much from events in the Middle East, the oil price and also what has been happening in Japan," said Gayle Berry, analyst at Barclays Capital.
In agricultural commodities, U.S. corn and soy futures fell after the disaster in Japan exacerbated the bearish mood in grain markets. CBOT corn futures fell 0.1 percent to $6.63-1/2 a bushel, while soy futures fell 1 percent to $13.22-1/4 a bushel.
Tokyo and all ports south of Japan's capital were operating normally, while the rest were being assessed for damage, industry sources said Monday.
But at least six Japanese seaports handling international trade sustained major damage, including Hachinohe, Sendai, Ishinomaki and Onahama, and will be out of action for some time.
(Additional reporting by Jan Harvey and Pratima Desai in London and Nick Trevethan, Rujun Shen and Lewa Pardomuan in Singapore; Editing by Anthony Barker)