Oil, Copper Lead Gains in Commodities on Outlook for Rate Cuts

By Chanyaporn Chanjaroen

Oct. 29 (Bloomberg) -- Crude oil and copper led an advance in commodities in London and New York on expectations that lower borrowing costs will aid a rebound in demand for raw materials.

China, the world's largest consumer of industrial metals, cut interest rates for a third time in two months. The U.S., the biggest oil user, may lower its benchmark rate to 1 percent today, according to the median forecast of economists surveyed by Bloomberg. The S&P GSCI index of 24 commodities has dropped 29 percent this month, its worst performance since at least 1970.

``Commodities are pricing in a recovery in demand that will be sooner than people had earlier expected,'' said Eugen Weinberg, a commodities analyst at Commerzbank AG in Frankfurt. A decline in the dollar against currencies such as the euro and a rebound in global stock markets also buoyed commodities, he said.

The Federal Reserve has already cut the benchmark rate from 5.25 percent in the past 13 months and created six lending programs channeling more than $1 trillion into the financial system. The MSCI World Index of equities has plunged 42 percent since the start of the year.

Crude oil for December delivery climbed as much as $3.98, or 6.3 percent, to $66.71 a barrel on the New York Mercantile Exchange and was at $65.67 a barrel as of 11:51 a.m. in London. The fuel reached a record $147.27 on July 11.

``It's all moving on the back of the equity feel-good factor,'' said Robert Laughlin, a senior broker with MF Global Ltd. in London. ``The fundamentals of the oil market have gone for the moment.''

The Organization of Petroleum Exporting Countries will ``probably'' cut crude output quotas a second time to avoid the growth of inventories, Venezuelan Oil Minister Rafael Ramirez said in an interview on state television. The group reduced its output target by 1.5 million barrels a day after meeting Oct. 24.

Metals Advance

On the London Metal Exchange, industrial metals rallied. Copper for delivery in three months jumped $150, or 3.6 percent, to $4,280 a metric ton. Aluminum advanced 1.7 percent, nickel 5.3 percent and zinc 6.1 percent. The LME index of six metals has retreated for six consecutive weeks as copper and aluminum slumped to their lowest in three years.

A jump in stock prices is positive for copper ``the same way they've been negative'' as equities fell, said Kevin Tuohy, a trader at MF Global Ltd. in London. ``If you look at the chart, copper mirrors equities.''

Gold also advanced in London as the dollar weakened against the euro, buoying demand for the U.S. currency as an alternative investment. Silver and platinum gained.

``It's a buying opportunity for gold, the selling pressure on the dollar is high,'' said Liran Kapeluto, a senior dealer at trading-system operator Finotec Trading U.K. Ltd., said by phone from London.

Agriculture Strengthens

Corn and soybeans gained after the U.S. Department of Agriculture reduced its production forecast yesterday from an earlier prediction because of errors in acreage estimates.

Corn for December delivery rose as much as 17.25 cents, or 4.4 percent, to $4.08 a bushel in electronic trading in Chicago. Soybeans for January delivery gained as much as 31 cents, or 3.5 percent, to $9.19 a bushel.

To contact the reporter on this story: Chanyaporn Chanjaroen in London at cchanjaroen@bloomberg.net