RTRS:COMMODITIES-Oil, gold lead commodity gains as outlook improves
* Gold snaps four days of declines, rises more than 1 pct
* Eurozone optimism leads to weaker dollar, spurring commodities
* Copper is most "exposed," Deutsche Bank says
* Grains climb as drought disrupts seeding
By Jane Lee
SINGAPORE, Sept 27 (Reuters) - Oil and gold led gains in commodities in Asia on Tuesday as investors bet Europe's plan to shore up banks would reduce the risks of a widespread banking crisis in the euro zone, prompting investors to reduce holdings of the U.S. dollar.
Spot gold rallied more than 1 percent, snapping four consecutive sessions of losses as a weaker dollar helped battered commodities stage a comeback. Brent crude LCOc1 rose above $105 a barrel but is poised for a second quarter of decline.
"In the last couple of days the market over-reacted to the situation in the euro zone and the United States," said Cameron Alexander, a senior metals analyst at GFMS, a unit of Thomson Reuters.
Euro-zone officials are working to magnify the impact of the region's rescue fund, European Central Bank policymakers said on Monday, boosting hopes the region will be able to staunch a sovereign debt crisis that threatens world economic growth.
The news pushed the dollar down 0.6 percent against a basket of currencies , making gold cheaper for holders of other currencies.
Spot gold gained 1.7 percent to $1,654.99 an ounce by 0728 GMT, after sinking as much as 7 percent on Monday to a 7-1/2-month low near $1,530. U.S. gold GCcv1 jumped 3.9 percent to $1,656.40.
Gold's appeal as a safe-haven asset remains intact given the uncertainty in global growth and concerns about Europe's sovereign debt, and strong investment demand is likely to push gold towards $2,000 by the end of the year, Alexander said.
Technical indicators suggested gold could see more short-term weakness. Spot gold may fall back to Monday's intraday low of $1,534.49 later in the day, said Reuters market analyst Wang Tao, who is looking for larger declines in the long term.
"EXPOSED" COPPER
In the event of a global recession, copper is the most "exposed" among the industrial metals, Deutsche Bank AG said in an e-mailed report on Tuesday.
The most-active December copper contract SCFc3 on the Shanghai Futures Exchange rebounded nearly 5 percent at one point soon after the open, but later pared gains by 750 yuan ($117.18) to 55,150 yuan per tonne by 0135 GMT.
Three-month copper on the London Metal Exchange reversed direction, rising 1.4 percent to $7,365 a tonne after having tumbled to a 14-month low on recession fears.
"The collapse in precious metal prices and specifically gold and silver prices may take weeks to repair," said Deutsche Bank's analysts, led by Michael Lewis.
"However, the commitment by the U.S. Federal Reserve to keep interest rates on hold, central bank diversification and European sovereign risks are maintaining our bullish outlook."
Grains rebounded, with corn and wheat climbing more than 1 percent amid forecasts supplies will tighten as drought affects planting.
SWINGING OIL
Brent futures LCOc1 rose $1.16 to $105.10 a barrel by 0507 GMT, after climbing to as high as $105.58. U.S. crude CLc1 gained $1.42 to $81.66 a barrel. It climbed more than $2 earlier.
Brent and U.S. crude prices have stabilised after falling to seven-week lows and posting weekly losses of more than 7 percent last week.
"Clarity on the euro zone plan is still key, crude prices are swinging back and forth depending on what comments come out of Europe," said Victor Say, an analyst with Informa Global Markets in Singapore.
(With additional reporters by Francis Kan, Manolo Serapio, Jr, Rujun Shen and Naveen Thukral; Editing by Clarence Fernandez)
