Oil drops as IMF cuts US growth forecast

Equities were mixed overnight at the start of the US earnings season. Oil dropped after the International Monetary Fund lowered its growth forecast for two of the world's three largest economies.

Alcoa is scheduled to release results after the market's close.

While profits for S&P 500 companies were expected to grow more than 11 per cent from a year ago, according to Thomson Reuters data, some investors suggested that increase had already been priced into shares.

"There's a question of whether companies can meet the fairly optimistic expectations," John Carey, portfolio manager at Pioneer Investment Management in Boston, told Reuters. "There's potential for disappointment, but if they come in line or above the market could experience a continued rally."

Carey said he expected earnings to be strong, "but there were a lot of odd things that happened during the quarter that could affect results," citing higher prices for raw materials.

In early afternoon trading on Wall Street, the Dow Jones Industrial Average was up 0.18 per cent. The Standard & Poor's 500 Index slipped 0.10 per cent and the Nasdaq Composite Index fell 0.27 per cent.

Meanwhile, Federal Reserve Vice Chairman Janet Yellen said that the rise in food and fuel costs would only affect inflation and consumer spending temporarily, suggesting the central bank would complete its US$600 billion program of bond purchases aimed at bolstering growth.

"The surge in commodity prices over the past year appears to be largely attributable to a combination of rising global demand and disruptions in global supply," Yellen said in a speech in New York.

"These developments seem unlikely to have persistent effects on consumer inflation or to derail the economic recovery and hence do not, in my view, warrant any substantial shift in the stance of monetary policy."

Energy shares such as Occidental Petroleum dropped today, along with oil, after the International Monetary Fund cut its growth forecasts for the US and Japan.

The IMF lowered its forecast for US growth in 2011 to 2.8 per cent from 3 per cent, citing oil prices at the highest levels since 2008 and the pace of job creation in the world's biggest economy. It reduced its Japan forecast to 1.4 per cent from 1.6 per cent.

Crude futures dropped 2.2 per cent to US$110.27 a barrel at 2.04pm in New York.

Other commodities also suffered. Spot gold shed 0.5 per cent to US$1,465.76 an ounce by 1637 GMT. London Metal Exchange three-month copper ended the session US$20 lower at US $9,855.

The euro weakened, falling 0.2 per cent to US$1.4442 in early afternoon New York trading.

The euro was 0.4 per cent lower at 122.24 yen, while the greenback was up 0.22 per cent against a basket of currencies.