Copper, Oil Lead Commodity Climb as Equities Jump on Bank Plans

By Glenys Sim and Sungwoo Park

Oct. 14 (Bloomberg) -- Copper headed for the biggest two-day gain since at least 1986 and crude oil rose, leading an advance in commodities as equities jumped after governments agreed to support banks and flood the financial system with cash.

Gold advanced for the first time in three days, soybeans extended a gain from a 13-month low, and corn increased the most in almost a month. U.S. stocks yesterday staged the biggest rally in seven decades and Asian stocks were set for the largest gain since 1998.

``The European central banks did what the market has been thirsty for,'' said Nicholas Chung, senior manager of commodity derivatives at state-owned Korea Development Bank in Seoul. ``The moves have pushed up equities and then commodities across the board and this upward momentum is likely to continue today.''

Commodity prices measured by the CRB index gained 3 percent yesterday after plunging 20 percent in the past two weeks on a worsening global economic growth outlook as banks failed and credit markets froze.

Asian stocks surged today, driving Japan's Nikkei 225 Stock Average to its biggest gain on record as Japan and Australia pumped $12.9 billion into money markets after European leaders agreed to guarantee new debt from financial institutions and use taxpayers' money to keep lenders afloat.

Copper and oil followed stock markets higher as people briefed on the matter said the Bush Administration plans to in inject about $125 billion into nine major U.S. banks in a push to restore confidence.

Copper Jumps

Copper for delivery in three months on the London Metal Exchange rose as much as 7.5 percent to $5,500 a ton, bringing gains in the past two days to 13 percent, the most since at least 1986. Oil added 3.1 percent to $83.68 a barrel.


A gauge of 120 energy producers in the MSCI World Index fell 35 percent, while a measure of mining, mining and chemical companies declined 32 percent in the two weeks to Oct. 10 as companies struggled to get funding after borrowing costs jumped.

``After yesterday's price action, the Libor fixing will be the most important event today,'' Tobias Merath, head of commodity research at Credit Suisse Group, wrote in a note today. The cost of borrowing in dollars for three months fell from the highest level this year, the British Bankers' Association said. The London interbank offered rate, or Libor, for three-month dollar loans dropped 7 basis points to 4.75 percent yesterday.

``A drop in Libor rates would signal that the interbank markets start working again, which would be very positive for commodities,'' Merath said.

Gold Gains

The plan fueled investor concern about inflation, boosting demand for gold as a hedge. Bullion also advanced as the dollar declined against the euro after European leaders agreed to guarantee bank borrowing.

``People aren't sure whether the pumping of all this cash is inflationary, and also the continuing uncertainty about other markets,'' Charles Dowsett, head of structuring and trading of precious metals at ABN Amro Holding NV. in Sydney, said today.

Bullion for immediate delivery added 1.7 percent to $847.42 an ounce at 11:32 a.m. in Singapore. Soybeans on the Chicago Board of Trade gained 2.8 percent to $9.5375 per bushel and corn advanced 3.2 percent to $4.2475 a bushel.

To contact the reporter on this story: Glenys Sim in Singapore at gsim4@bloomberg.net