A sharp overnight selloff in commodities petered out on Friday, led by a small pullback in silver, while Asian equities clawed back up from the day's lows as market players squared positions before U.S. payrolls data.
Despite the pullback, trading remained volatile and sentiment cautious as sharp drops in metals this week weighed on the broader market. There was a brief wave of stop-loss selling in stocks and commodity currencies such as the Australian dollar, which pushed higher funding currency favorites like the yen and the dollar.
Even as the Reuters-Jefferies CRB index <.CRB>, a global benchmark for commodities prices looked set to lose at least 8 percent on the week, for its biggest weekly fall since July 2008. Tetsu Emori, a commodities fund manager at Astmax Co in Tokyo, said prices may fall some more.
Commodity markets are poised for a further near-term drop as speculators and those who joined the rally in its late stages unwind long positions, Emori said. It was the best performing asset class in 2011 until last week, posting gains of more than 10 percent.
Energy and resource counters, which had been the outperformers in Asian equities before the selling spree in commodities erupted, led declines in regional stock markets.
Australia's shares <.AXJO> were flat on the day after falling by nearly half a percent thanks to a strong banking sector while shares outside Japan <.MIAPJ0000PUS> trimmed early losses.
Japanese shares <.N225>, opening after a three-day break, were down 1.8 percent on concerns that the yen's sudden surge due to unwinding of carry trades and a patch of U.S. soft data this week would slow the pace of the broader economic recovery.
COMEX silver slumped 5 percent early on Friday before pulling back slightly, but was heading for a weekly loss of nearly 30 percent as some investors such as billionaire Carlos Slim increased bearish bets against the metal's dizzying rise.
Oil steadied around the $100 per barrel mark after a record $12 drop in the previous session due to a washout of overstretched long positions arising from unrest in North Africa and the Middle East, traders said.
The rebound is mainly due to the market being oversold, when commodities reverse it rarely goes down in a straight line, said Gordon Kwan, head of energy research at Mirae Asset Securities in Hong Kong.
Brent has fallen below the 50-day moving average and I expect it to be testing $105 a barrel, he added.
The greenback, a funding currency favorite thanks to the Fed's ultra easy monetary policy, scored its biggest one-day rise in nearly nine months versus the euro on Thursday after the European Central Bank signaled it won't raise interest rates in June.
If upcoming U.S. job data prompts investors to boost their growth expectations, the greenback could gain further as investors could further reduce growth-leveraged positions such as going long in commodity currencies and the euro, traders said.
As some players had built up long positions in the Aussie and the euro, based on the rise in commodities, further falls in commodities could mean more position unwinding in currency markets, said Makoto Noji, currency analyst at SMBC Nikko Securities.
The sharp wave of risk reduction across markets also boosted bond prices with 10-year U.S. Treasury yields dipping to 3.16 percent before recovering somewhat. It has fallen more than 40 basis points in less than a month.
(Additional reporting by Chikako Mogi and Hideyuki Sano in TOKYO; Editing by Richard Borsuk)