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GLOBAL MARKETS-Commodities off record highs; Japan yen firms

Published 04/12/2011, 08:19 AM
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* Global shares on track for biggest 1-day fall in 4 weeks

* Oil rebounds but commodities off record highs

* Yen up as investors unwind carry trades

By Sebastian Tong

LONDON, April 12 (Reuters) - Global share prices fell on Tuesday and commodity prices traded off record peaks after fresh concerns about inflation and Japan's nuclear crisis fuelled a debate about the strength of the economic recovery.

Retreating commodity prices helped send MSCI's main world equity index down 0.7 percent, on track for its biggest one-day fall in four weeks.

The failure of U.S. aluminium producer Alcoa Inc to meet analysts' revenue forecasts was a focal point for investor uncertainty over first quarter earnings.

The FTSEurofirst 300 index of top European shares slipped 1.2 percent, with miners and energy firms among the heaviest losers. Emerging markets, which count several resource exporters in their ranks, fell 1.3 percent. ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ For oil futures positions vs. oil price since 2007: http://r.reuters.com/duc98r

All Commodities Futures Trading Commission positions: http://r.reuters.com/buv87r ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Brent crude firmed 0.7 percent but remained off Monday's 2-1/2 year high after slipping on a broader bout of profit-taking that knocked commodity prices.

The sell-off was triggered in part by a report from long-term commodity bull Goldman Sachs warning that oil and other raw material prices could retreat after strong recent gains.

Spot gold fell from Monday's record high while silver sagged from the previous session's 31-year high.

Anxiety over global growth outlook was fuelled by the International Energy Agency, which warned that high oil prices could erode demand.

Societe Generale said rising gasoline prices in the U.S. were fuelling a debate about "demand destruction" in the world's top economy. "Geopolitics (are) still critical. But with prices high, markets may be having doubts on demand," SocGen said.

YEN UP

Concerns over global growth were heightened after Japan's economic minister warned that the economic damage wrought by last month's earthquake and tsunami could be worse than initially thought. Japan's move to put the severity of radiation leakage at its stricken Fukushima nuclear plant on a par with the worst nuclear disaster at Chernobyl also weighed on sentiment. Heightened risk aversion prompted investors to unwind some carry trade positions using the Japanese yen as a low interest rate currency to buy higher yielding assets.

"Our positioning data shows some carry trades are pretty extended," said Chris Walker, currency strategist at UBS.

The yen firmed to a 1-1/2 week high versus the dollar but gains are likely to be curbed by the Bank of Japan's perceived determination to keep monetary policy loose to aid economic recovery.

Still, the steadier yen offered the dollar some respite, allowing the greenback to stay above Friday's 16-month lows against a basket of major currencies.

Dovish comments from key U.S. Federal Reserve officials are likely to cap the greenback's gains.

Two of the Fed's most powerful officials, Janet Yellen and William Dudley, said the U.S. central bank should stick to its super-easy monetary policy as inflation was not a threat and unemployment remains too high.

Diverging monetary policy direction among the world's major central banks is likely to remain an investment theme in the coming months -- and a below-forecast UK inflation reading in March knocked sterling to a 5-1/2 month low against the euro.

Heightened risk aversion nudged German Bunds higher with the June Bund future up 36 ticks.

Emerging sovereign spreads widened 3 basis points to trade at 251 bps over U.S. Treasuries.

(Additional reporting by Neal Armstrong and Zaida Espana; Editing by John Stonestreet)

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