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Commodities mixed as eurozone shakes up interest rates

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(Globalpost/GlobalPost)

Commodities diverged this week as investors digested a radical shake-up of eurozone interest rates, while cocoa hit a three-year high on speculative buying.

Some markets took a hit from the strong greenback, which struck a four-month euro high as the European Central Bank cut key lending rates to all-time lows.

The ECB slashed its deposit rate to -0.10 percent. This negative rate means that banks will be charged for leaving funds at the ECB in the hope they might lend it on to businesses and consumers instead. It also cut the key lending rate to a record low of 0.15 percent.

The unprecedented move was aimed at bolstering fragile eurozone growth and preventing deflation, but also boosted hopes of rebounding demand for commodities.

On Friday, data showed upbeat US jobs growth in May, adding a better-than-expected 217,000 jobs, stoking demand expectations in the world's biggest economy.

OIL: The global oil market held steady as supply worries eased over the Ukraine crisis, but Brent briefly touched a one-month low after the surprise ECB news.

"Brent tested a low at $107.7 per barrel ... due to nervous trading conditions surrounding the ECB interest rate decisions," said Sucden analyst Myrto Sokou.

"However, the ECB confirmed its view by cutting all three of its interest rates at its policy meeting (and by) also introducing a new series of measures to boost the sluggish European economies.

"The optimistic news raised hopes about a strong rebound in the oil demand from eurozone amid signs of higher economic growth in the region."

Crude futures edged lower on easing Group of Seven tensions with Russia over the Ukraine crisis, and on the back of plentiful global supply, analysts said.

Russian President Vladimir Putin returned to the international centre stage on Thursday after being granted his first meetings with Western leaders since the eruption of the Ukraine crisis.

The meeting comes as he says he is ready to meet Ukraine's newly elected president Petro Poroshenko, raising hopes of an easing in the worst East-West standoff since the Cold War.

Investors fear a full-blown conflict in the ex-Soviet state, a conduit for a fifth of European gas imports from Russia, will disrupt supplies and send energy prices soaring.

"Losses (for Brent oil prices) this week have been attributed to a stabilising situation in Ukraine as well as an abundance in supply," noted Inenco analyst Dorien Lucas.

"The comfort in supply has arisen from varied sources; increased exports from Angola and southern Iraq have managed to outweigh worsening unrest in Libya.

"However, looking forward, supply fears stemming from Libya may worsen."

Next week meanwhile, OPEC will meet in Vienna, where it is expected to keep its daily oil output ceiling at 30 million barrels as supply tensions keep oil prices elevated.

By Friday on London's Intercontinental Exchange, Brent North Sea crude for delivery in July dipped to $108.77 a barrel from $109.39 a week earlier.

On the New York Mercantile Exchange, West Texas Intermediate or light sweet crude for July firmed to $102.73 a barrel compared with $102.72 a week earlier.

- Gold rally fades -

PRECIOUS METALS: Gold attempted to rally following the ECB news but ran out of steam heading into the weekend.

"Gold rallied sharply yesterday after the ECB announced its latest stimulus measures aimed at fighting deflation and spurring growth in the eurozone," noted Forex.com analyst Fawad Razaqzada.

He added: "The yellow metal has been drifting lower ever since the middle of March, partly due to vanishing concerns over inflation."

Gold is traditionally viewed as a safe store of value in times of higher inflation.

Meanwhile, palladium hit another four-year high due to strikes in South Africa. It reached $845.60 an ounce on Wednesday, the highest point since August 2011.

South Africa, which supplies nearly a third of the world's palladium, has been hit by long-running industrial action at its mines.

By Friday on the London Bullion Market, the price of gold eased to $1,247.50 an ounce from $1,250.50 a week earlier.

Silver increased to $19.03 an ounce from $19.00.

On the London Platinum and Palladium Market, platinum slid to $1,453 an ounce from $1,464.

Palladium rose to $840 an ounce from $836.

BASE METALS: Base or industrial metals mostly fell on the back of demand fears in key consumer China. They were also hit by media reports of an official Chinese probe into financing deals in the sector.

"Copper was under pressure from signs of a surplus and doubts about the outlook for demand from China," said analysts at consultancy Triland Metals.

"Traders also have concern about disruption to import shipments related to a probe of financing deals."

Markets also assessed mixed global manufacturing data.

The eurozone's composite index of manufacturing activity for the bloc fell to a six-month low of 52.2, according to Markit Economics.

But there was evidence of solid activity in China, whose official purchasing managers index (PMI) of manufacturing activity reached 50.8 in May, a five-month high. A reading above 50 indicates expansion.

By Friday on the London Metal Exchange, copper for delivery in three months fell to $6,674 a tonne from $6,867.75 a week earlier.

Three-month aluminium eased to $1,851 a tonne from $1,851.25.

Three-month lead fell to $2,075 a tonne from $2,103.

Three-month tin slipped to $23,020 a tonne from $23,120.

Three-month nickel decreased to $18,624 a tonne from $19,192.

Three-month zinc rose to $2,075.50 a tonne from $2,060.

- Cocoa strikes 3-year peaks -

COCOA: Prices struck three-year highs on the back of speculative buying of the commodity that is mostly used to make chocolate.

Cocoa reached £1,965 per tonne in London -- the highest point since July 2011. It also hit $3,104 a tonne in New York -- a level last seen in August 2011.

"More long speculators are moving into the market," said Citi analyst Sterling Smith.

However, he added that favourable weather conditions in key producing nations would push prices lower in the longer term.

"Weather continues to very supportive to crop development," he said.

"When these supplies begin to move into the market, we should begin to see prices stabilise and likely turn lower to some degree."

By Friday on LIFFE, London's futures exchange, cocoa for delivery in July jumped to £1,959 a tonne from £1,951 a week earlier.

On the ICE Futures US exchange, cocoa for July rose to $3,097 a tonne from $3,079.

COFFEE: The coffee market continued to be weighed down by abundant global supplies.

On ICE Futures US, Arabica for delivery in July dropped to 170.10 US cents a pound from 177.85 cents a week earlier.

On LIFFE, Robusta for July reversed to $1,899 a tonne from $1,920.

SUGAR: The market weakened.

By Friday on LIFFE, the price of a tonne of white sugar for delivery in August declined to $460.50 from $468.90 a week earlier.

On ICE Futures US, the price of unrefined sugar for July dipped to 16.90 US cents a pound from 17.27 US cents.

RUBBER: Prices in Kuala Lumpur extended losses as the ringgit weakened against the US dollar.

The Malaysian Rubber Board's benchmark SMR20 slipped to 166.60 US cents a kilo from 169.40 cents a week earlier.

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