RTRS: COMMODITIES-Markets surge off lows as equities rally
* Commodities up as Asia equities see first weekly gain in 7
* Recession fears weigh but analysts query depth of sell-off
By Nick Trevethan
SINGAPORE, Oct 17 (Reuters) - Commodity markets bounced on Friday, paring the previous session's hefty losses as financial markets turned higher again after gains overnight in U.S. stocks.
Oil rose more than $3, rebounding from a 15-month low below $70, copper gained more than 6 percent, zinc leapt 9 percent and grains and gold pushed higher.
The Dow Jones industrial average .DJI jumped 4.68 percent while the broader Standard & Poor's 500 Index .SPX climbed 4.24 percent. [.N] In Asia markets also rallied posting their first weekly gain in seven.
But commodity prices remain well below where they started the year as fears about demand and aversion to risk have sent investors rushing from the sector.
For a chart detailing commodity prices, please click:
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But analysts questioned whether the steep declines in prices of industrial raw materials -- nickel is down 80 percent from record highs in 2007 and oil is off more than 50 percent from lifetime highs in July -- were fully justified by the prospect of a recession.
"The interesting question is whether a recession really will result in sufficient demand destruction to warrant a 60 percent retracement in (commodity) prices," said Jonathan Barratt, at Commodity Broking Services in Sydney.
"In previous recessions, prices fell by a quarter. Look at zinc -- it's gone from $4,500 to $1,250. Does a drop in growth of say, 3 percent, really require that kind of pullback?"
U.S. crude for November delivery CLc1 rose $2.66 to $72.56 a barrel by 0652 GMT, after settling $4.69 lower at $69.85, before the close of trade on Wall Street.
"This is all the oil market has been doing," said Tim Evans, energy analyst with Citi Futures Perspective. "Our short-term swings are all 'equities are up' and 'equities are down'." Analysts said oil traders were also betting the Organization of the Petroleum Exporting Countries (OPEC) would reduce supply to support prices when it meets next week.
EMERGENCY MEETING
The 13-member cartel said on Thursday it had brought forward to Friday next week an emergency meeting to discuss the impact of global recession on oil markets. [ID:nLG685339]
London Metal Exchange copper rose 6.4 percent to peak at $4,960 a tonne, after dropping more than 5 percent to a 33-month low during the previous session.
Aluminium rose 3.1 percent to $2,247, but is still a third off its all-time peak reached in July, weighed down by a 1.47-million-tonne stockpile in LME warehouses.
"With stocks at these levels you can argue that aluminium prices should go lower, especially as crude has come off so sharply," Barratt said.
Gold gained, recovering from a 6-percent drop in New York, supported by falls in the dollar against the euro.
Gold rose 0.8 percent to $810.55 an ounce, after touching its weakest in a month on Thursday.
Bargain hunting by private investors in Japan and buybacks by producers lifted prices, but jewellers were on the sidelines and the charts also indicated bullion could still hit the lows again, said Yukuji Sonoda, an analyst at Daiichi Commodities.
"In Japan, jewellery demand is tremendously poor. So many scraps have been returned to fabricators. We reached $750 last month, so it may be possible for us to touch that level again," he said.
Gold's volatility has scared off jewellers and some investors. It rallied to a two-month high of $931 last Friday on a weak dollar before tumbling all the way to $823.50 on the same day as investors sought cash to cover margin calls.
U.S. soy and corn futures rose more than 2 percent after hitting new multi-month lows overnight. December corn futures Cc1 rose 2.5 percent to $3.94 a bushel after hitting a 11-month low overnight of $3.71.
November soybean Sc1 rallied 3.7 percent to $8.99-¼ and wheat also turned higher, with the December contract WZ8 rising 2.5 percent to $5.69, after hitting a level not seen for 16 months overnight.
"The correlation between equities and grains has increased now to 100 percent and pure fundamental factors in the grain market, such as supply and demand disruptions, are now taking a backseat as all eyes are on the depth and the length of the global economic recession," said Kim Dong-young, a manager at KB Futures. (Editing by Clarence Fernandez)
