Commodities Extend Gains, Buoyed by Equities, Rate-Cut Prospect

By Gavin Evans

Oct. 29 (Bloomberg) -- Commodity prices extended gains in Asia as a rebound in equity markets and the prospect of central bank rate cuts convinced some investors the worst may be over for oil and industrial metals.

Crude oil rose after the Dow Jones Industrial Average posted its second-best points gain ever and OPEC signaled further production cuts. Copper and aluminum, which reached three-year lows on Oct. 27, also rose on speculation slowing demand growth will force more smelter operators to shut plants.

``Overall, the metals have been sold down to price levels that won't be sustained,'' said David Moore, commodity strategist at Commonwealth Bank of Australia in Sydney. ``Ultimately there will be a recovery,'' he said.

The S&P GSCI index of 24 raw materials has dropped 32 percent this month, its worst performance since at least 1970, as world equity markets plunged and weakening economies in Europe and Asia lifted the U.S. currency to a two-year high, reducing the appeal of dollar-priced commodities.

Asian stocks gained today as speculation the Bank of Japan will cut rates depressed the yen, boosting the outlook for export earnings in the world's second-largest economy. BHP Billiton Ltd., the world's biggest miner, rose a third day, aided by higher metal prices and speculation the U.S. Federal Reserve will cut interest rates by 50 basis points this week to shore up growth.

Oil Gains

Oil for December delivery rose as much as 6.3 percent, to $66.71 a barrel on the New York Mercantile Exchange after stocks rallied and OPEC Secretary-General Abdalla el-Badri said the group may meet again before December if prices don't react to last week's 1.5 million barrel-a-day output reduction.

Copper for delivery in three months advanced as much as 3.2 percent to $4,260 a metric ton on the London Metal Exchange. Prices gained 2.7 percent yesterday on speculation Chinese demand will hold and higher-cost producers will cut output. As much as 10 percent of production is already unprofitable, Rio Tinto Group Chief Economist Vivek Tulpule said Oct. 27.

While miners are reacting to slowing world demand, projects being deferred now may not be reflected in the market until 2010, Commonwealth's Moore said. In the meantime, investors will need to brace for more bad news out of the world's major economies in coming months, he said.

``The real hit is yet to come,'' he said.

Aluminum for three-month delivery in London gained for a third day, adding 0.7 percent to $2,125 a ton at 11:28 a.m. in Singapore. Zinc rose 0.4 percent to $1,155 a ton.

Corn rose for a third day after the U.S. Department of Agriculture reduced its production forecasts after discovering errors in its earlier acreage estimates. The grain for December delivery rose 2.6 percent to $4.0075 a bushel on the Chicago Board of Trade.

To contact the reporter on this story: Gavin Evans in Wellington at gavinevans@bloomberg.net