Commodities retreat on hints of tighter US policy

SINGAPORE: Commodities snapped a four-day winning streak, led by declines in silver and copper, on speculation the Federal Reserve may end its bond-buying program and as China was said to be tightening its credit policy.

The Standard & Poor's GSCI Index of 24 raw materials lost as much as 0.9% to 745.49, the biggest intraday loss since April 19. The index was 0.2% lower at 751.12. Silver fell as much as 5.4% and copper slumped 2.5%.

The Fed begins its two-day meeting on Tuesday and is expected to say on Wednesday it will conclude its second round of quantitative easing, known as QEII, through June to support the economy. "There's uncertainty from the US monetary policy," Dominic Schnider, an analyst at UBS in Singapore, said on Tuesday. "Keep in mind that it has been the QEII that pushed commodity prices." The Standard & Poor's GSCI index has rallied about 37% in the past year, buoyed partly by the US monetary policy, which helped drive growth and spur demand from investors and industrial users.

Copper, gold, silver and rubber rallied to records this year and oil climbed to more than $100 a barrel for the first time since the financial crisis in 2008. The US central bank will leave its target rate for overnight lending between banks at zero to 0.25%, according to all 82 economists in a Bloomberg News survey.

China's banking regulator set capital targets for the nation's five biggest lenders above the minimum 11.5% ratio last month amid concern that credit risks may rise, three people with knowledge of the matter told Bloomberg News. The move added to measures China's policy makers have taken to curb loan growth and slow inflation. Metals traded on the London Metal Exchange declined partly on concern that the credit-tightening policy in China, the largest user of copper and aluminium, may curb demand growth.

Copper for three-month delivery dropped as much as 3.3%, the most since March 9. Futures caught up with losses in New York and Shanghai after the London exchange resumed trading after a two-day holiday. Zinc fell as much as 4.7% to $2,249 a tonne, also the most since March 9.

"Market sentiment has been dented all around by the ongoing efforts of the Chinese governm-ent to rein in liquidity," said Shi Hai, an analyst at Shanghai Tonglian Futures. The Dollar Index rose 0.5% on Tuesday against a basket of six major currencies. The index has lost 9.3% in the past year. Oil for June delivery was down 9 cents at $112.19 a barrel on the New York Mercantile Exchange.

Saudi Arabia is not comfortable with prices and is committed to keeping aside a "sizeable cushion" of spare capacity, Saudi Aramco CEO Khalid al-Falih said in Seoul. Consumers need not be concerned by high crude prices because spare capacity can "moderate" the market, said al-Falih, who is in South Korea for a board meeting this week.