Oil, Metals, Crops Fall on Concern U.S. Bail-Out Plan May Fail

By Grant Smith

Sept. 29 (Bloomberg) -- Commodities fell, led by oil, copper and lead, on concern the U.S. plan to spend $700 billion propping up America's banks will fail to unlock credit markets and avert a slowdown in the world's largest economy.

Crude, gasoline, heating oil, copper, lead, corn, soybeans, silver and rice all dropped more than 2 percent, leading the S&P Goldman Sachs Commodity Index to a 3.2 percent decline. While U.S. Treasury Secretary Henry Paulson and leaders in Congress reached an agreement giving the government the authority to buy distressed bank assets, short-term interest rates failed to decline in Asia and Europe as banks restricted lending.

``The fear is that the rescue package is not enough to stop the economy falling into a full-blown recession,'' Eugen Weinberg, a commodity analyst at Commerzbank AG in Frankfurt. ``And as people fear that problems outside the U.S. might be even worse, we see the euro weaken and remove support for commodities.''

Brent crude oil for November settlement fell as much as $4.03, or 3.9 percent, to $99.51 a barrel on the ICE Futures Europe exchange. The contract traded at $99.80 at 9:48 a.m. London time.

Gold for immediate delivery fell as much as low as $867.83 an ounce, trading for $870.03 at 9:50 a.m. in London. Silver for immediate delivery declined 2.7 percent to $12.94 an ounce.

U.S. lawmakers are reviewing a tentative agreement to revive credit markets through the bailout package, which may be voted on by the House tomorrow, House Speaker Nancy Pelosi said. President George W. Bush said in a speech Sept. 27 that the package was needed to prevent a ``deep and painful recession.''

Corn, Soybeans

Corn for December delivery fell as much as 13 cents, or 2.4 percent, to $5.30 a bushel in after-hours electronic trading on the Chicago Board of Trade and was at that price by 9:21 a.m. London time.

Soybeans for November delivery lost as much as 30 cents, or 2.6 percent, to $11.34 a bushel and last traded at $11.35 by 9:24 a.m. London time.

``Even if the Troubled Asset Rescue Plan is passed, that doesn't necessarily mean there aren't any obstacles on the road to economic recovery,'' said David Moore, a commodity strategist at Commonwealth Bank of Australia in Sydney. ``There are worries about the outlook for the international economy.''

The dollar strengthened as much as 2 percent against the single European currency, the most since Aug. 8, and traded at $1.4338 as of 9:27 a.m. in London.

A stronger dollar makes commodities more expensive for buyers outside the U.S., potentially weakening demand.

U.S. fuel demand averaged 19.5 million barrels a day during the past four weeks, the lowest since October 2003, the Energy Department said in a Sept. 24 report. New home sales in the U.S. fell in August to a 17-year low and orders for durable goods dropped more than forecast, government reports showed Sept. 25.

To contact the reporters on this story: Grant Smith in London at gsmith52@bloomberg.net