Oil and industrial metals prices extended the week's sharp falls on Wednesday on fears that rising interest rates will dent demand from investors and consumers.
Many investors expect higher interest rates in Australia, China and Britain following increases in Europe and New Zealand last week, which could make industrial commodities less attractive investments and choke off demand by curbing growth.
As bond yields rise, borrowing costs go up and the return on more risky assets like equities and commodities decreases compared to interest rates, analyst Andrew Harrington at Australia and New Zealand Bank said.
This is not risk aversion, it is 'risk choicing' and if analysts think those interest rates will slow growth, they are likely to hurt demand for industrial metals.
The benchmark 10-year U.S. Treasury note extended losses, driving the yield to a five-year high of 5.33 percent and surpassing the Federal Reserve's benchmark rate of 5.25 percent.
Nickel, a key input for stainless steel makers, lost 6 percent on Tuesday and continued its decline below $40,000 a tonne on Wednesday, falling to $38,900 by 1022 GMT.
Nickel was trading $12,000 higher only six weeks ago, so obviously there has been a bale-out from some commodities, but then equities and everything else were overheating, said Christoph Eibl of $1 billion commodities fund Tiberius Asset Management.
Interest rates go in line with the economic cycle and do affect the base metals, he said.
Benchmark copper futures were $60 lower at $7,130 per tonne.
The dollar rose to a 4-1/2-year peak against the yen and an 11-week high against the euro, further deterring potential investors who hold other currencies by making dollar-denominated commodities more expensive.
The primary reason for the dollar's strength is higher interest rates, said Tatsuo Kageyama, analyst at Kanetsu Asset Management Co. Ltd.
U.S. crude oil fell 16 cents to $65.19 by 1030 GMT after a 62 cent fall on Tuesday. London Brent crude was up 3 cents at $68.82 after a 77 cent drop on Tuesday. Brent's July contract expires on Thursday.
U.S. gasoline stocks were forecast to have risen by 1.7 million barrels last week as refinery use increased, a Reuters poll of analysts said, though analysts said demand was still looking strong in the world's top consumer.
We are making a slight increase in our implied gasoline demand assumption... on expectations that demand will trend higher as we approach the peak of the summer driving season, JP Morgan said.
Traders are still watching potential supply disruptions, such as Iran's nuclear dispute with the West, militant attacks on Nigeria's oil infrastructure and the Gulf of Mexico hurricane season.
Edible oils, which often track crude prices because of their use as biofiuel, also fell.
The benchmark August Malaysian palm oil contract was down 83 ringgit, or 3 percent, at 2,350 ringgit a tonne.
Spot gold yielded to the stronger dollar, falling to a three-month low of $643.75 per ounce by 1035 GMT, down from $648.30/$649.80 last quoted in New York.
London sugar futures were down 1.4 percent at $304.70 per tonne, under pressure from a global surplus.