SINGAPORE: Commodities erased some losses as bargain-hunting on Tuesday helped oil claw back most of a fall of nearly 3 per cent and copper pull away from an eight-month low hit during a sell-off triggered by fears of a global recession.
Earlier, Brent crude had plunged to a six-month low, while London copper fell for a fifth straight session after a US credit downgrade intensified slowdown fears, sending gold to an all-time high for a second day in a row.
Asian stock markets plunged and the Swiss franc held near a record high as investors dumped riskier assets in a global rout on concerns that political leaders were failing to tackle debt crises in Europe and the United States.
Investors are counting on China's economic strength to support commodity prices when the Western world is on shaky ground. But data on Tuesday showing China's inflation speeding to a higher-than-forecast 6.5 per cent in July suggests Beijing may have limited room to stimulate domestic growth.
"It's crucial for commodity markets that China doesn't slide. Fears of a China slowdown would really take the wind out of the markets," said Citigroup analyst David Thurtell.
The historic downgrade of the United States' credit rating on Friday, along with a raging debt crisis in Europe, triggered a sell-off that has knocked nearly 10 per cent off the price of US crude in just two days and sent other commodities tumbling.
"It's panic at the moment," said Thurtell. "Obviously the risks of a recession have risen but I think that if the authorities act in a timely manner there'll be no need to panic."
Investors have lost confidence that Europe and the United States can effectively address their budget deficits and fear spread of another recession after the 2008 global financial meltdown.
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