COMMODITIES-Arabica coffee, sugar rally; dollar hurts oil

Trade the News

Wednesday September 08, 2010 12:31:20 PM GMT

* Arabica hits 13-1/4 year top; raw sugar 6-year peak

* Oil, copper, wheat fall on firm dollar, weaker outlook

* Coming Up: U.S. consumer credit for July on Wednesday

By Barani Krishnan

NEW YORK, Sept 7 (Reuters) - Arabica coffee hit 13-1/4 year highs and raw sugar a 6-month top on Tuesday, defying a stronger dollar and nervous U.S. commodity markets reopening from a long weekend.

But crude oil settled down and copper and wheat prices retreated from last week's highs as some investors became more risk averse.

Renewed worries over Europe's banking sector and mixed U.S. job trends for August softened somewhat the outlook for the commodities complex, which rallied sharply last week on the back of a weaker dollar and encouraging macroeconomic data.

U.S. stocks' key S&P 500 index -- a proxy for business confidence -- fell about 1 percent on cautious sentiment as financial markets reopened from Monday's Labor Day holiday which led to a longer weekend break for U.S investors.

"Equities came off, the dollar is strong -- it's pretty much a knock-on effect," Rob Montefusco, a commodities trader at London's Sucden Financial, said referring to the drop in oil, base metal and grains prices.

The 19-commodity Reuters-Jefferies CRB index ended up about 0.4 percent, helped by gains in coffee, sugar and other markets such as soybeans, gold and cotton.

(Graphic: http://link.reuters.com/kew48n)

Analysts said investor sentiment on Wednesday was expected to be influenced by U.S. Consumer Credit data for July.

New York's arabica coffee for December finished up 5.35 cents, or 2.86 percent, at $1.923 per lb. It was the highest settlement close for the second position arabica coffee contract since June 1997.

The rally was confined, however, to the market in New York as U.K. coffee futures barely rose. London's robusta coffee for November ended up just $3 at $1,620 a tonne.

Arabicas fell earlier in the session due to profit-taking. But a lack of selling as top grower Brazil was celebrating a holiday allowed the market to quickly climb when light fund buying hit futures.

"I think people are really trying to push (arabicas) to $2, probably having some shorts getting squeezed here," said Bill Raffety, senior analyst for futures brokerage Penson GHCO.

Jack Scoville, an analyst for brokers The Price Group, said major market players were mounting a "push to get to the $2 level" in arabica coffee.

Raw sugar futures climbed to a fresh 6-month high, propped up by expectations that the global sugar market was likely to be in a balanced rather than surplus supply state in 2010/11.

New York's raw sugar for October ended up 0.85 cent, or 4.1 percent, at 21.45 cents per lb. It was the highest settlement since March 8 for a U.S. spot sugar contract.

Drought in leading sugar importer Russia and major flooding in Pakistan recently has hurt the potential for global sugar production and ramped up demand.

"We're seeing a little bit of fund buying. It's more technical than fundamentally driven," said Jake Weatherall, a sugar and soft commodities trader with Rabobank in London. "It's a pretty impressive performance considering that the dollar is stronger today."

The dollar rose about 1 percent against a basket of other currencies, making commodities denominated in the greenback costlier for users of other money.

U.S. crude oil's front-month contract settled down 51 cents, or 0.7 percent, at $74.09 a barrel.

It fell as much as $1.97, or 2.6 percent, during the session to a one-week low of $72.63 before recovering on news of a major explosion at a Mexican oil refinery.

Copper's benchmark three-month contract on the London Metal Exchange closed at $7,629 a tonne, down from Monday's close of $7,705 but off the session low of $7,496.25.

In New York, U.S. copper futures' most-active contract, December, settled down 2.95 cents, or nearly 1 percent, at $3.4705 a lb.

U.S. wheat futures' front-month September contract settled down 5-3/4 cents, or 0.8 percent, at $7.02-1/2 a bushel. The more active December contract finished down 6 cents, or 0.8 percent, at $7.35-1/4 per bushel.

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