Commodities-Caution over economy sinks oil, other commodities

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United States - * Oil plunges as markets react to Bernanke
* Gold retreats, metals down; agriculture falls despite weakerdollar (Updates with settlement prices)
By Barani Krishnan
NEW YORK (Reuters) - Oil fell more than $9 a barrel Tuesday, itssharpest intraday fall in 17 years, dragging down gold and othercommodities, after the Federal Reserve said high crude prices wereamong the factors threatening the U.S. economy.
Crude for August delivery on the New York Mercantile, or NYMEX,sank as much as $9.26, or 6.4 percent, to a session low of $135.92a barrel after Fed Chairman Ben Bernanke said many financialmarkets and institutions remain under considerable stress.
NYMEX crude later settled trade at $138.74, down $6.44 from Monday.The intraday drop was the largest in dollar terms since thebenchmark crude contract on NYMEX fell $10.56 on Jan. 17, 1991,after the United States began bombing Iraq in the first Gulf War.
"This is largely profit-taking run amok," said Tim Evans of CitiFutures Perspective. "We have seen fundamentals weakeningprogressively month after month and the fall in the stock marketcalls our attention to that."
Shares on Wall Street, particularly banking and financial stocks,took another hammering from signs that the U.S. mortgage and creditcrisis which began a year ago could take a turn for the worse. Thedollar, initially at record lows against the euro, rebounded afterthe plunge in oil.
Investors had stepped up their exposure to commodities this year tohedge against losses in equities and other low-yieldinginvestments. This had contributed to NYMEX crude climbing frombelow $100 a barrel at the end of 2007 to $147 last week.
Even so, oil and other key commodities had seen rather volatilemoves lately as investors took profits on record highs in thosemarkets. Even gold, the safe haven that attracts investors in timesof calamity, saw some turbulence Tuesday before eventually endinghigher as markets everywhere reacted to Bernanke's testimony to theSenate.
"If the U.S. goes into a major recession and leads global growthdown, you can't be long commodities. That's what we're seeingtaking place here," said Chris Jarvis, senior analyst at CaprockRisk Management.
Bernanke cited the possibility of even higher energy prices,tighter credit conditions, and deeper crisis in the housing marketswhich he said represented "significant downside risks to theoutlook for growth."
"At the same time, upside risks to the inflation outlook haveintensified lately," the Fed chairman told the Senate BankingCommittee.
Steve Goldman, a market strategist at Weeden & Co, said althoughinvestors were expecting some caution from the Fed chairman, "it'sstill alarming to hear and the market did react to this news, givenBernanke didn't sugar-coat the situation."
U.S. gold futures for August delivery on NYMEX's COMEX metalsdivision ended up $5.00 at $978.70 an ounce, retreating from anintraday high of $989.60.
Industrial metals on the London Metal Exchange, or LME, were alsomostly down with support from a weaker dollar offset by fears ofslowing demand in top consuming nation China.
LME zinc fell 8 percent to $1,844 a tonne as an oversupplied marketshrugged off news that Teck Cominco Ltd (nyse: TCK - news - people ), the world's second-largest zinc miner, will close its LennardShelf zinc mine next month.
LME copper closed down $145 at $8,145 a tonne.
U.S. copper futures for September, traded on NYMEX's COMEX, settled5.20 cents, or 1.4 percent, lower at $3.70 a lb.
Agricultural markets on the Chicago Board of Trade were down too,with sharp losses across the board in soybeans , corn and wheat. Copyright 2008 Reuters, Click for Restriction
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