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Commodity prices plunge on China worries

November 12, 2010 | 11:35 am

Commodity prices are in a rout Friday, a sell-off blamed on fears that China will continue to raise interest rates to dampen inflation. That could cool its economy, the world's biggest consumer of many raw materials, of course.

The China rumors also gave a convenient profit-taking excuse to commodity investors who've been riding the surge in prices since late August.

The Reuters/Jefferies CRB index of 19 major commodities was down 10.89 points, or 3.5%, to 303.96 at about 11:30 a.m. PST, the biggest drop since April 2009.

U.S. stocks also are broadly lower, led by raw-materials-related issues and energy stocks. The Dow Jones industrial average was off 121 points, or 1.1%, to 11,162, the fourth decline in five sessions.

Among key commodities falling sharply Friday, gold was down $39.70, or 2.8%, to $1,365.90 an ounce; copper slid 12.85 cents, or 3.2%, to $3.90 a pound; soybeans were off 70 cents, or 5.2%, to $12.69 a bushel; and crude oil lost $3, or 3.4%, to $85.28 a barrel.

The CRB commodity index had soared 22% from Aug. 25 to Nov. 9, when it reached a two-year high.

The surge in prices had been powered in part by the falling dollar, as some investors sought hard assets as a hedge against currency devaluation. But the greenback has bounced over the last week, draining some of the interest in commodities.

On Friday, the DXY index of the dollar's value against six major currencies was off slightly. But that hasn't helped commodity markets.

Demand for hard assets also may be ebbing as worries about a new European debt crisis ease. Irish bond yields plummeted from record highs Friday after European Union officials tried to assure bondholders that any restructuring of Ireland's heavy debts wouldn't force investors to take a haircut on their securities.

-- Tom Petruno