* Commodity prices tumble, gold under $1,400 an ounce
* U.S. dollar gains on higher risk tolerance
* U.S. factory orders rise in November
* European shares end at one-week high
(Rewrites first paragraph, updates prices, adds Federal
Reserve minutes)
By Daniel Bases
NEW YORK, Jan 4 (Reuters) - Commodity prices fell sharply
on Tuesday as investors took advantage of record high prices to
take profits, a move accelerated by a rally in the U.S.
dollar.
Wall Street also pulled back after a strong December
boosted equities to two-year highs, with consumer and energy
stocks weaker.
The Reuters-Jefferies CRB index <.CRB> of commodity prices
dropped 2 percent in its sharpest one-day fall since
mid-November
European shares closed at a one-week high, boosted by gains
in shares of oil companies before the price of crude oil began
to slide. Strong manufacturing data from around the world
boosted commodity prices earlier in the day.
U.S. crude for February delivery <CLc1> settled down $2.17,
or 2.37 percent, to $89.38 per barrel, a day after hitting a
27-month high.
"We had an end-of-year runup and now we are getting the
beginning of the year selloff," said Stephen Schork, president
at the Schork Group in Villanova, Pennsylvania.
The profit-taking overwhelmed upbeat economic data. An
unexpected increase in U.S. factory orders in November reported
on Tuesday underpinned recent evidence that the economic
recovery was on a sustainable path. Orders, excluding
transportation, recorded their largest gain in eight months.
[]
In minutes from a December meeting released on Tuesday,
Federal Reserve officials said the U.S. economic recovery was
still weak enough to warrant monetary support despite growing
signs of strength. []
Strength in the U.S. dollar added to the commodity selloff
since a stronger dollar makes purchasing many raw materials
more expensive. Commodity-related currencies, like the Canadian
and Australian dollars, fell with the decline in the price of
oil.
On Wall Street, weak consumer stocks and a prediction by
Morgan Stanley that the benchmark S&P 500 will lose ground in
2011 weighed on sentiment a day after the S&P 500 and the Dow
hit two-year highs.
Worries that rising costs of commodities such as soybeans
and corn will sap supermarket profits hurt consumer stocks and
dented growing optimism about the economic outlook.
S&P 500, NASDAQ INDICES FALL
In midday trade the major indexes were mixed. The Dow Jones
industrial average <> rose 9.04 points, or 0.08 percent, at
11,679.87. The Standard & Poor's 500 Index <.SPX> lost 3.64
points, or 0.29 percent, at 1,268.23. The Nasdaq Composite
Index <> dropped 12.22 points, or 0.45 percent, at
2,679.30.
Morgan Stanley forecast a base case year-end target for the
S&P 500 at 1,238, below the close for 2010. The firm's
risk-reward scenario for 2011 was "skewed to the negative."
Shares of Supervalu Inc <SVU.N> tumbled 5.8 percent after
Morgan Stanley told investors to cut holdings in the stock,
saying rising food costs will crimp margins.
"We're light on consumer staples. One of our concerns is
commodity prices are going to bite into profits," said Thomas
Villalta, portfolio manager for Jones Villalta Asset Management
in Austin, Texas.
S&P's energy share index fell 0.94 percent <.GSPE>.
Activity across all commodity markets picked up
dramatically as traders returned from holiday, with volume at
mid-session already in excess of any day over the past two
weeks.
Prices for gold and corn fell over 2 percent; copper lost
1.75 percent.
"It's a healthy correction in copper," said Sean
McGillivray, vice president at Oregon-based Great Pacific
Wealth Management.
Spot gold prices tumbled below $1,400 an ounce, losing
$35.70, or 2.53 percent, to $1378.10 <XAU=>.
Copper dropped 7.75 cents to $4.37 per pound in New York
trade <HGc1>, down from Monday's record high.
While commodity prices are lower on the day, they remain
near multiyear or record highs.
In currency markets, the euro was down 0.3 percent from
late on Monday at $1.3316 <EUR=EBS> after hitting three-week
peaks at $1.3435.
The dollar gained 0.40 percent to 82.05 yen. Against a
basket of major trading partner currencies, the greenback rose
0.36 percent <.DXY>.
The MSCI All-Country World index <.MIWD00000PUS> rose 0.04
percent. Earlier, Japan's Nikkei <> began the year with a
1.7 percent climb to a 7-1/2 month closing high.
U.S. benchmark 10-year Treasuries were unchanged in price
to yield 3.34 percent <US10YT=RR>.
(Additional reporting by Barani Krishnan, Jeremy Gaunt,
Caroline Valetkevitch, Anirban Nag and Brian Gorman; Editing by
Kenneth Barry)
