By Sungwoo Park and Chanyaporn Chanjaroen – Mar 18, 2013

Commodities fell by the most in two weeks as outrage in Cyprus rekindled concern that Europe’s debt crisis may deepen, hurting demand prospects for raw materials from oil to copper. Gold rose.

The Standard & Poor’s GSCI Spot Index of 24 raw materials fell as much as 1.2 percent, the biggest drop since March 1, and was at 645.70 at 11:28 a.m. London time. Copper in London dropped by the most in five months, pacing declines in industrial metals, while crude oil in New York headed for the biggest loss since March 1.

Euro-area finance ministers reached an unprecedented agreement on March 16 forcing depositors in Cypriot banks to share in the cost of the latest bailout. The 17-nation currency fell to its lowest level this year against the dollar as investors sought haven assets.

“The Cyprus issue is the biggest driver of sharp falls in commodities across the board as that is pushing the euro lower and the dollar higher,” Lelia Kim, a trader at Seoul-based Tong Yang Securities Inc., said by phone today. “Coupled with weak data out of the U.S., which is ruining recent recovery optimism, industrial metals are being hit hardest, while gold is rising on safe haven demand.”

Copper for delivery in three months dropped as much as 2.7 percent, the biggest loss since Oct. 19, to a four-month low of $7,545.75 a metric ton on the London Metal Exchange. Zinc lost 1.5 percent, lead fell 1.9 percent and aluminum declined 1.1 percent.

The Thomson Reuters/University of Michigan preliminary U.S. consumer sentiment index for March fell to 71.8, the lowest level since December 2011, from 77.6 in February. The gauge was projected to increase to 78, according to the median estimate of 67 economists surveyed by Bloomberg.

‘Flight to Safety’

“It’s a classic flight to safety as a result of the sharp move higher of the dollar,” Steven Dooley, Melbourne-based head of research at brokerage Forex Capital Trading Pty Ltd., said today by phone. “Cyprus is more like an aftershock after the global financial and the European debt crises. I expect each shock like this to be less and less severe, but a lot depends on how the authorities manage it.”

Gold for immediate delivery advanced as much as 1.1 percent to $1,608.60 an ounce, the highest since Feb. 27, before trading at $1,603.09. The Dollar Index, a gauge that measures the strength of the greenback against six major rivals, jumped 0.4 percent to 82.623. The euro fell 0.9 percent to $1.2954.

Cypriot President Nicos Anastasiades will try to persuade lawmakers in Nicosia to ratify the levy today, which would raise 5.8 billion euros ($7.5 billion). Scenes of Cypriots lining up at cash machines raised the specter of capital flight elsewhere. Cyprus accounts for less than half of a percent of the euro region’s economy.

Crude Oil

West Texas Intermediate crude fell from the highest level in three weeks as Libya shut an oil pipeline after protests. Futures for April delivery slipped 1 percent to $92.49 a barrel in New York.

“Cyprus is not a critical part of the global oil industry, it’s just another one of many crises that’s not an existential threat anymore to the Euro,” Jeremy Friesen, a commodity strategist at Societe Generale SA in Hong Kong, said by phone today. “But it does highlight problems in the euro zone with an inability to keep credit loose and prevent really slow growth. The weakness in oil prices is more driven by a stronger dollar than any indication of weaker growth globally.”

To contact the reporters on this story: Sungwoo Park in Seoul at spark47@bloomberg.net; Chanyaporn Chanjaroen in Singapore atcchanjaroen@bloomberg.net

To contact the editor responsible for this story: Brett Miller at bmiller30@bloomberg.net


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