* LME copper falls 4 percent, spot gold dips * Brent, U.S. crude decline for a third straight day * China's official manufacturing index slows in October * MF Global collapse highlights risks from euro zone crisis (Adds quotes, updates prices) By Eric Onstad and Jane Lee LONDON/KUALA LUMPUR, Nov 1 (Reuters) - Crude oil and copper spiralled lower on Tuesday after Greece's surprise move to hold a referendum on its euro zone bail-out package and a slowdown in China's factory activity hit investor confidence about raw materials demand. A strong dollar also knocked commodities markets, where copper slid 4 percent, U.S. crude shed almost 3 percent and gold dipped, failing to attract much traditional safe-haven buying. Commodity markets rallied last week after euro zone leaders agreed to hand Athens a second bailout worth 130 billion euros ($181 billion) and a 50-percent write-down on its debt in exchange for harsh spending cuts, but a referendum could unravel the deal. Investors worried that the decision to hold a referendum would intensify the euro zone crisis, have knock-on impacts on economic growth and further trim demand for raw materials. "It was unrealistic to expect someone could suddenly wave a magic wand and expect everything to be alright," said Nic Brown, head of commodities research at Natixis in London. "We've avoided a catastrophe, but I think it is a little inevitable that the market is backing away from the big gains we had last week. I would expect that to continue in the near term." The referendum move could lead to a snap election, changing the nation's leadership at a time when austerity measures are needed to secure financial aid. Adding to the gloomy picture was data showing China's big factories ran at their slowest pace in almost three years. China's official PMI recorded its lowest reading since February 2009, coming in at 50.4 for October compared with September's 51.2 and below a forecast of 51.6. But HSBC's China Purchasing Managers' Index for October rebounded above the 50-point boom-bust demarcation for the first time since June. Also dragging down sentiment and draining liquidity was the filing by MF Global for bankruptcy protection following bad bets on euro zone debt and the unwinding of its positions. "MF Global's collapse definitely has some impact on commodity markets by contributing to the risk aversion mood in the markets," said Phillip Futures analyst Ong Yiling. The dollar rose 1.5 percent against a basket of major currencies , making it more expensive for holders of other currencies to buy commodities priced in the greenback. CHINESE DATA HITS COPPER Industrial metals were the biggest losers as investors worried about the impact of Europe's debt crisis on the global economy and the data from China, which accounts for about 40 percent of global copper demand. Three-month copper on the London Metal Exchange erased early gains to tumble 4 percent to a low of $7,670 a tonne. The price of the metal used in power and construction had jumped 14 percent in October, the biggest monthly gain in 10 months. "The Chinese number provided negative impetus...Being very cyclical, industrial metals will remain vulnerable to any negative surprise in economic data," Credit Suisse said in a note. Spot gold lost 1 percent to a low of $1,696.24 an ounce, after staging a monthly increase of 5.5 percent in October. U.S. gold futures GCcv1 slipped 1.3 percent, but some market participants were still bullish that gold would eventually fulfill its traditional safe haven role. "Our view is that gold is poised for a move significantly higher as the Greek tragedy has not yet fully played out, the safe haven role will prevail as the key driver of gold prices as investors seek a lifeboat in a crisis," said Ross Norman, chief executive of bullion broker Sharps Pixley. Gold has moved in tighter lockstep with industrial commodities such as copper or risk asset such as equities in the last month and has thus been more prone to falling in times of heightened uncertainty, rather than adopting its traditional safe-haven role and benefiting from such turmoil. The uncertainty over Europe's debt crisis also weighed on the oil market, where Brent crude and U.S. oil declined for a third straight day. U.S. crude CLc1 fell 3 percent to a low of $90.41 a barrel while Brent crude oil LCOc1 lost 1.9 percent to $107.45 a barrel. Brent posted a 6.6 percent gain in October, its biggest jump since April, and after slumping 10.5 percent in September. In agricultural markets, corn slid for a second day while soybeans and wheat also came under pressure. Sugar, coffee and cocoa were also dragged down with other commodity markets on the gloomy outlook. ($1 = 0.717 Euros) (Additional reporting by Rebekah Kebede and Rujun Shen; Editing by Anthony Barker)

Source