* 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
(Updates with U.S. market close, adds comment)
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. Stocks in Tokyo appear poised to gain ground
when trading resumes on Wednesday. Nikkei futures for March
traded in Chicago show a rise of 65 points to 10,430 <NKH1>.
The Reuters-Jefferies CRB index <.CRB> of commodity prices
dropped 1.59 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, at $89.38 per barrel, a day after hitting a
27-month high.
U.S. gold futures for February delivery <GCG1> settled down
$44.1 an ounce at $1,378.80.
"I think this is more of a healthy correction. The fear
trade is backing off somewhat after gold has recently rallied
on global economic anxiety," said Mark Luschini, chief
investment strategist of Janney Montgomery Scott, a financial
services firm managing $50 billion in client assets.
"Data in the last couple of days only continues to affirm
the organic strengthening in the economy, and that's not just
only in the U.S., but in the euro zone as well," he said.
The profit-taking in commodities 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. For more, see: []
In minutes from the Federal Reserve's December meeting
released on Tuesday, 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 sell-off
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 <.SPX> will lose
ground in 2011 weighed on sentiment a day after that index, as
well as the Dow Jones industrial average <> both 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
Major U.S. market indexes closed mixed. The Dow industrials
<> gained 20.43 points, or 0.18 percent, to 11,691.18. The
Standard & Poor's 500 Index <.SPX>, however, lost 1.67 points,
or 0.13 percent, to 1,270.20. The Nasdaq Composite Index
<> fell 10.27 points, or 0.38 percent, to 2,681.25.
Morgan Stanley forecast a base case year-end target for the
S&P 500 at 1,238, below the 2010 close. The firm's risk-reward
scenario for 2011 was "skewed to the negative."
Shares of Supervalu Inc <SVU.N> fell more than 6 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," said Thomas Villalta,
portfolio manager for Jones Villalta Asset Management in
Austin, Texas. "One of our concerns is commodity prices are
going to bite into profits."
S&P's energy share index fell 0.61 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.
Copper for March delivery <HGH1> shed 8.85 cents, or 2
percent, to settle at $4.3690 per lb in New York trade, pulling
further away from Monday's record peak of $4.4980.
"It's a healthy correction in copper," said Sean
McGillivray, vice president at Oregon-based Great Pacific
Wealth Management.
Chicago corn for March delivery <Cc1> fell 12 cents, or 1.9
percent, to settle at $6.08-1/2 a bushel.
While commodity prices were lower on the day, they remain
near multiyear or record highs.
In currency markets, the euro was down 0.41 percent from
late on Monday at $1.3307 <EUR=EBS> after hitting three-week
peaks at $1.3435.
The dollar gained 0.43 percent to 82.06 yen. Against a
basket of major trading partner currencies, the greenback rose
0.39 percent <.DXY>.
The MSCI All-Country World index <.MIWD00000PUS> rose 0.11
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 Frank Tang, Barani Krishnan, Jeremy
Gaunt, Caroline Valetkevitch, Leah Schnurr, Anirban Nag and
Brian Gorman; Editing by Dan Grebler)
