Three of the pillars that have supported a record rally in commodities prices are showing signs of strain, possibly signaling a pause or an end to the markets' steep climb.

Oil, metals and agricultural products have been among the biggest beneficiaries of a slide in the value of the U.S. dollar, booming demand in developing Asian economies, and loose regulation governing speculation on the futures markets.

But each of those factors are showing signs of reversal with moves to shore up the greenback, signs of slowing global demand growth, and steps to build up market surveillance by U.S. regulators.

There are some serious headwinds being faced by the market right now that have entered the equation only recently, said Addison Armstrong, director of market research at Tradition Energy in Connecticut.

A cooling of the red hot commodities rally would be good news for consumer nations like the United States, already hard hit by a housing slump.

U.S. Federal Reserve Chairman Ben Bernanke signaled on Tuesday the central bank would act to shore up the flagging greenback -- a move that may damp buying by investors who have piled into oil and other commodities as a hedge against the sliding greenback and inflation.

(Bernanke's language) is intended to reverse a bit of this trade, said Chris Jarvis, senior analyst for Caprock Risk Management in New Hampshire.

The commodity complex's all clear to buy signal has just been flicked off and I am sure traders are on high alert for a rebound in the dollar, a bearish event for commodities.

The dollar gained after Bernanke's comments, while commodities markets were mostly weaker. Tens of billions of dollars have poured into oil and other commodities since the Fed began to cut rates in the third quarter of 2007, especially through commodity index vehicles.

The gains added to a six-year commodities boom on surging demand from China and other emerging economies, driving up prices and spurring food and fuel protests across the globe.

All the central bank leaders around the world have been very concerned about inflation. It's been a tremendous spotlight on commodity prices in general as an inflation barometer, said Bruce Dunn, vice president of trading at Auramet Trading in Fort Lee, New Jersey.


Analysts say high prices have also begun hit oil demand in consuming nations like the United States and Britain, and there are concerns the weakness could spread to Asia as some countries ease fuel subsidies that have supported consumption.

Tradition Energy's Armstrong said a 5 percent decline in demand from Indonesia, Taiwan, Thailand, Malaysia, and India -- countries rolling back subsidies or mulling the move -- would cut more that 310,000 barrels of daily crude consumption, the equivalent of two North Sea oil fields' output.

Adding strain to the commodities rally, U.S. regulators have announced moves to step up monitoring of commodities futures markets following pressure from lawmakers pointing the finger at speculators for food and fuel inflation.

The move by the Commodity Futures Trading Commission could spook some big investors into trimming back positions to stay under the regulatory radar and defend against the possibility that other big investors will do the same, experts have said.

The investor retreat could provide some relief to record oil prices, which peaked over $135 a barrel last month and fell below $125 on Tuesday.

I think this a correction. I think the market is very vulnerable, said Rob Kurzatkowski, futures analyst with optionsXpress in Chicago. You may be even see prices hitting the low teens, $113 or $114 a barrel because of this.

Other commodities have fallen from their highs as well, and analysts said if the Fed decides to increase interest rates rather than just maintain them, further losses may be in the works.

The real issue is one of whether or not this is talk, or whether or not this is action. If this becomes action, I think we will see lower markets for the precious (metals) across the board, said Frank McGhee, head precious metals trader with Integrated Brokerage Services LLC in Chicago. (Reporting by Matthew Robinson, Robert Campbell, Frank Tang, and Chris Kelly; Editing by Marguerita Choy)

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