Energy, metals slide as dollar rebounds

Commodities prices plummeted Monday as the U.S. dollar regained strength against the euro, driving up the cost to foreign buyers of everything from energy to metals.

Industrial and precious metals prices slumped, with sizable declines in copper, silver and gold. Oil prices slid more than $2 to close below $80 a barrel, pulling other energy prices lower. Agricultural futures also tumbled.

Raw materials from crude oil to wheat came sharply off the peak levels of recent weeks, as the U.S. dollar recouped some of the ground it lost to the euro and other major world currencies. Commodities, largely bought and sold in dollars, lost some of their attraction to overseas investors as the greenback's rebound had the effect of a price markup and dented demand.

Gold prices, which often move opposite the dollar, retreated as investor confidence in the U.S. currency improved. December gold fell $8.50 to settle at $738.70 an ounce on the Nymex, while December silver shed 13 cents to $13.36 an ounce.

Industrial metals pulled back in New York and overseas. On the London Metal Exchange, nickel and zinc prices fell more than 2 percent, while tin and copper prices shed nearly 3 percent. Nymex copper slid 11.25 cents to settle at $3.613 a pound on the Nymex.

Crude oil for November delivery dropped $2.20 to settle at $79.02 a barrel on the New York Mercantile Exchange _ its lowest in almost a month _ while gasoline futures shed 4.91 cents to $2.0002 a gallon. Nymex heating oil fell 6.39 cents to settle at $2.1596 a gallon.

Energy futures sagged all day, but selling gained momentum after Royal Dutch Shell PLC said it would raise production at a Nigerian oil terminal that had been shut for more than a year due to violence in the region. Nigeria is a top supplier of oil to the U.S.

Trading volumes were low as many traders were off for Columbus Day and a holiday in Japan.

The dollar's climb on Monday was rooted in a shifting outlook for the U.S. economy and interest rates. A strong jobs report on Friday calmed investor concerns that the financial and credit market turmoil of recent months would spread to other areas of the economy. Since then, market expectations for further interest rate cuts have been reduced considerably.

Federal funds rate futures, a gauge of market expectations for interest rates, now point to a 52 percent chance the Federal Reserve will leave rates unchanged when it meets in Oct. 30-31. Futures also point to a decreasing likelihood the Fed will trim rates in December.

The 13-nation euro bought $1.4048 late Monday, compared with a peak of $1.4284 on Oct. 1.

Credit market conditions have improved substantially since defaults on subprime loans led to a seizing-up this summer, said Hugh Johnson, chief economist of Johnson Illington Advisors LLC.

"The economic numbers are indicating that there has not been any serious impact from the credit crunch we saw in the third quarter," he said. "There is no compelling need now, nor will there be in December, for the Federal Reserve to come to the rescue of the economy."

Analysts say a healthier U.S. economy would ultimately help raise demand for commodities, however prices are prone to suffer short-term corrections based on sharp moves higher in the U.S. dollar.

"Although economic growth is not likely to be strong, it's likely to be improving as we move through 2008, and commodity and oil prices will reflect that by moving modestly higher," Johnson said.

In the agriculture market, wheat prices plunged the daily limit permitted by the Chicago Board of Trade and held at that low through most of the session while other agriculture futures also declined. December wheat lost the 30-cent maximum to end at $8.60 a bushel, while December corn fell 2.5 cents to $3.3975 a bushel. November soybeans shed 15 cents to settle at $9.255 a bushel.

Last week's data from the Commodity Futures Trading Commission showed funds sold off long positions, or bets that prices will rise, in wheat, corn and soybeans _ a sign that investors believe the market has reached a top for now. Wheat prices are now off $1 from their peak above $9.60 a bushel in late September, a price level underpinned at the time by robust export demand.

The market is already looking ahead to a Friday Agriculture Department report on world supply and demand, including the up-to-date estimates on the size of the U.S. corn and soybean harvests.