Industrial commodity prices ended several days of losses on Wednesday after the U.S. Federal Reserve said it would take measures to prevent the economy from sliding into recession, although copper and crude oil held near multi-month lows.
Optimism over European leaders' efforts to limit the impact on the banks of a further deterioration in the euro zone's debt position encouraged investors to take on more risk, to the detriment of gold, which fell by as much as 1.4 percent early in the day.
Fed Chairman Ben Bernanke said on Tuesday the U.S. central bank's policy committee considers inflationary pressures well under control and, given high unemployment, would be ready to ease monetary conditions further following the launch of a new stimulus measure in September.
That brought some comfort to investors who had dumped commodities and equities in a market rout, which pulled down copper in the five sessions to Tuesday on worries a deepening debt crisis in Europe could hit the global economy.
This points to more risk appetite, and after the strong losses over the recent week, it is logical to see some bounce-back, probably on bargain hunting, Commerzbank analyst Eugen Weinberg said.
We are not out of the woods yet.
Three-month copper on the London Metal Exchange (LME) climbed to $6,875.75 a tonne at 1140 GMT compared with Tuesday's close of $6,800. The gains, with copper earlier rising some 3 percent to hit a session high of $7,009.75 a tonne, were in line with stronger equity markets in Europe.
Further supporting the copper price, the market deficit was estimated to be larger next year than this year, although the gap between supply and demand would narrow going into 2013.
The International Copper Study Group forecast the global refined copper market would show a 250,000 tonne production deficit in 2012 before moving closer to balance in 2013 as global growth slows.
Brent crude bounced back above $101, snapping a three-day losing streak, although the price held in sight of nine-month lows struck earlier this week, and analysts were downbeat on the prospects for oil and other commodities given the state of euro zone finances and the weak demand outlook.
I'm not sure this is the end of the bear trend. This is a short-term bounce, but until there is actual doing as well as comments, we won't see a sustainable recovery, said Andy Sommer an analyst at EGL in Dietikon, Switzerland.
Global oil prices below $90 a barrel would be difficult to accept, Iraq's Deputy Prime Minister for energy told Reuters on Wednesday, in a sign that a slide in prices is starting to worry some OPEC members.
In London, ICE Brent crude for November delivery climbed 1.9 percent to $101.77 a barrel. Prices closed below $100 on Tuesday for the first time since February.
Brent had fallen three straight weeks through Oct. 2. Prices are up 6.9 percent for this year after political turmoil in the Middle East disrupted oil production.
U.S. crude CLc1 was up $2.38 at $78.06 a barrel after touching an intraday high of $78.46.
Commodities also received a boost from the weaker dollar. The greenback declined 0.5 percent against a basket of major currencies, making commodities cheaper for buyers holding other currencies.
Commodity resources over the past few weeks have basically fallen on worry that recession may be around the corner and even the most resilient of economies like China may be affected, said Song Seng Wun, a regional economist at CIMB Research in Singapore.
To some extent, we don't know whether what we're seeing currently, in terms of recovery, is more of a technical thing.
The drop in the dollar also helped push up the price of palladium , a metal used primarily in catalytic converters in gasoline-powered vehicles, from one-year lows struck on Tuesday.
Spot palladium, which was one of the top performing assets last year when it nearly doubled in price, has fallen by 30 percent this year to around $558 an ounce as doubts have grown about demand from a faltering auto industry, particularly in China.
Meanwhile gold was down on the day but pared earlier losses as investors took heart from the prospect that euro zone finance ministers would safeguard the region's banks, which weighed on safe-haven German government bond futures.
Spot gold was last down 0.4 percent at $1,612.60 an ounce. The price has fallen by nearly 17 percent from a record high set in early September at $1,920.30 as investor demand for cash has pummelled equities and commodities alike.
The Reuters-Jefferies CRB index of 19 commodity futures fell to its lowest in a year on Tuesday, reflecting the breadth of the sell-off in the raw materials sector.