Commodities slide on world markets overnight

Commodities slid, taking stocks on Wall Street lower, amid concern that rising food and raw materials prices would cut into corporate profits.

The Dow Jones industrial average fell 0.18 per cent, the S&P 500 index dropped 0.59 per cent and the Nasdaq Composite Index shed 0.79 per cent in early afternoon trading.

Supervalu Inc plunged almost 7 per cent after Morgan Stanley recommended investors cut holdings in the stock, saying rising food costs would crimp margins. Safeway Inc and Whole Foods Market also declined.

"We're light on consumer staples. One of our concerns is commodity prices are going to bite into profits," Thomas Villalta, portfolio manager for Jones Villalta Asset Management in Austin, Texas, told Reuters.

Materials were the biggest losers. The S&P materials index slid 1.1 per cent, with a slide in metals prices, giving up some of their recent gains.

Even so, orders placed with US factories unexpectedly rose in November, led by gains in demand for capital equipment. Orders for capital goods like computers climbed 2.6 per cent.

The US dollar rose against the yen, gaining 0.3 per cent. The pound climbed 1 per cent against the euro on data showing UK manufacturing expanded at the fastest pace in 16 years in December and mortgage approvals unexpectedly increased.

The euro fell 0.3 per cent from late on Monday to US$1.3306.

It was a bleak day for gold, oil and copper, though some perspective was required given that commodities ended 2010 rushing to fresh records almost session by session.

Gold was on track for its biggest one-day loss since early November.

Spot gold was bid at US$1,384.20 an ounce at 1609 GMT, against US$1,414.00 late in New York on Monday.

Oil dropped from a 27-month high.

Dealers said the move reflected correction in the recent rally rather than a sudden reversal of the optimism that made commodities the top asset class last year.

"We had an end of year run-up and now we are getting the beginning of the year sell-off," Stephen Schork, president at the Schork Group in Villanova, Pennsylvania, told Reuters.

US crude oil for February delivery fell 2.57 per cent to US$89.20 a barrel at 11.20am EST in its biggest one-day decline since mid-November.

The mood earlier in the day in Europe was different. The benchmark Stoxx 600 gained 0.9 per cent as economic data underpinned the view that last year's rally in equities will continue in 2011.

The UK's FTSE 100 Index climbed 1.9 per cent after the market was closed for the New Year holiday yesterday.

"I am still optimistic," London-based Andrew Popper, chief investment officer at SG Hambros Bank said in a Bloomberg Television Interview.

"The move towards riskier assets should continue. We are looking at equities as presenting a positive outlook and other asset markets as well, especially commodities."