LONDON (Thomson Financial) - European government bonds continued to slide as stock markets rose strongly in the absence of any US trading, closed for President's Day.

The rise in prices is partly magnified by a lack of trading volume as US markets remain closed, but the improved sentiment has caused some profit-taking on the gains made last week.

Analysts say this may continue into tomorrow, when economic data will once again be scarce, leaving the stock market to drive bond prices.

"Whether the good mood will prevail of course remains to be seen; but a lack of A-list US economic data releases this week could mean that fears of a US recession -- whose odds have undoubtedly shortened following Friday's poor batch of US economic figures -- may linger on in investors' minds," said Neil Mellor at Bank of New York Mellon.

The markets are pricing in about 100 basis points-worth of cuts by the Federal Reserve by year-end, a view that has been cemented by the weak US economic data last week.

Looking at the days to come, the US will remain a key focal point, with inflation, housing starts and the Fed minutes due on Wednesday.

John Davies at WestLB believes the overall trend in US economic data "will continue to signal a recession."

"Growth in consumer prices probably accelerated again in January due to the higher energy prices... (but) the Fed will continue to weight growth risks more heavily than inflation risks," said Davies.

In both the US and Europe, bond prices will continue to show a steepening in their yield curve -- as shorter-dated maturities perform better than longer-dated ones on views that interest rates will be cut in the short-term.

In the UK, gilts were also lower, tracking the wider economy in the wake of the news that Northern Rock PLC, the troubled bank, will be nationalised.

Stephen Lewis at Insinger de Beaufort believes there will be little impact on debt markets.

"A more significant issue than Northern Rock for gilts-holders is the ongoing debate about the future liabilities of defined benefit pension schemes," he said.

The UK Pensions Regulator will publish proposals this week to reform the pensions benefit plans to account for greater longevity of beneficiaries, effectively increasing liabilities for pension funds by six to eight percent.

"More funds are, therefore, likely to be channeled into gilts than would otherwise have been the case," said Lewis.

At Yield Change on

1555 GMT pct previous close

March euribor future (Liffe) 95.66 dn 0.01

June euribor future (Liffe) 96.04 dn 0.05

GERMANY

March bund future (Eurex) 116.02 dn 0.41

4.00 pct Jan 2018 govt bond 99.94 4.00 dn 0.39

FRANCE

4.25 pct Oct 2017 govt bond 100.95 4.13 dn 0.39

ITALY

5.25 pct Feb 2018 govt bond 101.31 4.38 dn 0.28

UK

March gilt future 109.25 dn 0.25

5.00 pct March 2018 govt bond 102.88 4.64 dn 0.29

March short sterling future 94.37 dn 0.01

June short sterling future 94.77 dn 0.04

LONDON (Thomson Financial) - Copper surged to a 4-month high amid ongoing worries over sharp declines in LME inventories and as a rebound in demand from China, the world's largest user of the metal, boosted sentiment.

MF Global analyst Ed Meir said gains in copper could be sustained through the week as it is very light on the US macro economic calendar, meaning concerns over the economic decline there will remain sidelined.

US markets are closed today for the President's Day holiday, while the remainer of the week sees the release of January inflation data, as well as housing and building starts.

In any case, traders have pushed aside worries over US growth and falling copper demand there, to focus on fundamental factors like the ongoing decline in LME inventories.

The LME said in a daily report today that copper stocks held in its warehouses fell by 6,275 tonnes to total 144,375 tonnes. Stocks are now at their lowest since mid-October.

At 3.18 pm, LME copper for 3 month delivery was up at 7,930 usd a tonne against 7,730 usd at the close Friday, having earlier hit a 4-month peak of 7,965 tonnes.

Meir said LME copper stocks are being eroded because of a ramp up in Chinese copper imports, which were up 6 pct in January from December to 239,000 tonnes.

Although the increase in imports has helped spark a sharp build up in copper stocks in Shanghai, players are for now holding out for sustained strong demand from China, the world's largest copper consumer.

"China is still consuming and importing healthy amounts of copper," said UBS analyst Robin Bhar. "This shows China has an appetite for copper and that is always going to lend some support (to prices)."

Strong demand from China and falling LME inventories have underpinned copper and other metals in the year to date and helped overshadow worries that demand might wane if the US economy slows further.

Elsewhere, aluminium was up at 2,824 usd a tonne against 2,820 usd at the close Friday, when the metal hit a 9-month high of 2,873 usd amid ongoing jitters over possible supply outages in South Africa.

The country, which is the eighth largest aluminium producer in the world, is currently in the grips of a power crisis that last month led to a complete shutdown of mine output for 5 days.

Although state utility Eskom is currently reviewing plans to buy 45 mln tonnes of coal, in a bid to stave off the crisis, there is growing doubt over the efficacy of the move.

"Eskom is reluctant to purchase the coal at the spot export price, which is three to four times higher its average purchase price, and is in talks to pay somewhere in between the two levels".

"Meanwhile, the company is still weighing up various options and has still not ruled out the possibility of power buy-backs from major industrial and mining companies," said Standard Bank analyst Leon Westgate.

Last week, reports that Eskom was considering a complete buy-back of power from three aluminium smelters in South Africa and Mozambique sparked a sharp price rally.

Up to 1.5 mln ounces of aluminium output could be lost this year if the smelters are shut down. As things stand, industrial users have been forced to cut power usage to 90 pct of normal needs.

Meanwhile over in China, some 650,000 tonnes of output might be lost this year as a result of reduced output in recent weeks, linked to power shortages sparked by severe winter storms.

Although supply from China is starting to recover, the outlook in South Africa is not nearly as bright, with Eskom itself admitting the power shortages will be in place until 2012.

In other metals, lead was up at 3,007 usd against 2,970 usd, supported by a 275 tonne decline in LME inventories, while tin rose to 17,050 usd a tonne from 16,850 usd amid a 185 tonne drop in inventories held by the LME.

Gains in zinc, on the other hand, were capped by a further 575 tonne increase in LME inventories that kept stocks at their highest points since October 2006.

Three month zinc was flat at 2,360 usd a tonne, while nickel bucked the rising trend in metals, falling to 27,501 usd against 27,625 usd amid an increase of 216 tonnes in LME inventories.

LONDON (Thomson Financial) - Platinum held near a new record peak above 2,100 usd an ounce touched earlier this morning amid ongoing worries over a widening market deficit this year as power outages in South Africa continue to crimp output.

Gold meanwhile remained capped by a steadier tone in the dollar, which reduced the appeal of the precious metal as an alternative asset to the US currency.

Analysts said with the metal having failed Friday to benefit from renewed dollar weakness and strength in oil, it may well have to spend time consolidating before heading higher.

At 2.14 pm, spot gold was quoted at 903.45 usd an ounce against 903.00 usd in late New York trade Friday.

The metal has gained some 250 usd an ounce since last summer on dollar weakness and safe haven flows sparked by a worsening economic outlook in the US. However, gains have stalled recently.

Analysts note buying from physical players dried up as gold hit record peaks last month, adding there is little hope demand will recover with the Indian wedding season and Lunar New Year in China now over.

"Gold prices tend to seasonally weaken from March to August as jewellery manufacturers and other consumers buy less metal," said Fairfax analyst John Mayer.

"Lower expected consumer demand in the US, coupled with high price levels in US dollar terms, are likely to persuade jewellery manufacturers to delay purchases this year," he added.

Elsewhere, platinum was up at 2,109 usd an ounce against 2,077 usd in late New York trade Friday, having earlier touched a high of 2,116 usd amid ongoing supply woes South Africa.

Analysts doubt South African power utility Eskom will be able to buy 45 mln tonnes of coal in a bid to stave off a power crisis that has forced mines to cut their power usage to 90 pct of normal needs.

"Eskom is reluctant to purchase the coal at the spot export price, which is three to four times higher its average purchase price, and is in talks to pay somewhere in between the two levels.

"Meanwhile, the company is still weighing up various options and has still not ruled out the possibility of power buy-backs from major industrial and mining companies," said Standard Bank analyst Leon Westgate.

Last month, mines in South Africa, which produces around 75 pct of the world's platinum, were forced to shut down completely for five full days amid power shortages.

"With the platinum deficit expected to widen to 400,000-500,000 ounces this year, compared with last year's 265,000 deficit, the current upward price momentum has good fundamental support," said Standard Bank's Walter de Wet.

Platinum has hit a series of successive records over the past month, and has risen more than 30 pct this year alone.

Elsewhere, its sister metal palladium was up at 453 usd against 444 usd an ounce, having earlier set a series of fresh six-year highs, the latest recorded at 455.50 usd an ounce.

"Despite having far less favourable fundamentals compared with platinum, the metal has benefited from improved industrial and investment demand, and may look to challenge chart support at 469/480 usd in the coming sessions," said TheBullionDesk.com analyst James Moore.

Silver eased to 17.00 usd against 17.12 usd.

MARKET SNAPSHOT: Market Still Facing Headwinds From Credit, Economy

By Carla Mozee

Investors will look for U.S. stock gains to continue for a second consecutive week, but the market faces high hurdles from the ongoing credit crisis and recession fears that continue to hang over the market.

Market players will turn their attention to results from retailing giant Wal-Mart Stores Inc. (WMT) and a consumer-price inflation report that will shed more light on consumer activity in a sluggish economy.

A close eye will also be paid to action in the bond-insurance market, after New York Governor Eliot Spitzer warned Thursday that bond insurers have to move quickly to recapitalize themselves to keep their AAA ratings.

Fresh off the central bank's downgrade of the U.S. economy, investors will return from Monday's holiday to reports from the beleaguered housing sector and results from J.C. Penney Co. (JCP) and tech heavyweight Hewlett-Packard Co. (HPQ)

A three-day snapback rally, interrupted by a sell-off on Thursday, was enough to pull the major stock indexes higher this week, but it wasn't enough to convince Joe Liro, equity strategist at Stone & McCarthy Research Associates, that the market is ready to extend gains.

"As soon as you got some upside, people came in to sell. When you're selling bounces rather than buying dips, that's a clear indication that the overall trend is lower," he said.

Wall Street also will watch for results from European banking firms, many of which have been hit by the U.S. mortgage meltdown.

While concerns about recession loom large on Wall Street, Liro said that he considers the weak performance of the financial sector as the most "debilitating" factor for the market.

If the constant "litany of admissions of bigger write-downs and charges continues, it's has to be a negative next week," he added.

Britain's Barclays PLC (BCS) will report on Tuesday and France's BNP Paribas , which has warned of lower fourth-quarter profit, will report Wednesday. This week, Swiss banking giant UBS AG (UBS) recorded a $13.7 billion write-down in the fourth quarter related to its extensive exposure to the U.S. mortgage market.

Results are also due from Societe Generale , the French bank in the middle of a rogue-trading scandal that is expected to result in more than $7 billion of losses at the company.

Steven Sachs, head of trading at Rydex Investments, foresees little chance that stocks will move higher next week, particularly if Wednesday's consumer-price index report shows that consumers shelled out more money for goods and services in January.

A miss in expectations for CPI readings to remain steady "given Federal Reserve Chairman Ben Bernanke's testimony on the Hill and [Treasury Secretary Henry] Paulson's claim that inflation is not a concern and it will moderate" would hit stocks, said Sachs, who met the monetary officials' view about inflation with skepticism.

Economists polled by MarketWatch forecast the CPI to remain unchanged at 0.3%. Stripping out volatile prices for food and energy, core consumer prices are expected to stay at 0.2%.

As investors prepped for the upcoming inflation report and highly anticipated results from Wal-Mart, the world's largest retailer, signs abounded that consumers (whose spending drives about 70% of the U.S. economy) are becoming increasingly reluctant to part from their cash.

Consumer-electronics retailer Best Buy Co. (BBY) cut its full-year earnings forecast Friday because of lackluster sales after the holiday season, then consumer sentiment tumbled to its lowest level since 1992, according to a survey by the University of Michigan and Reuters.

Those developments followed Bernanke's congressional testimony Thursday said that the central bank is projecting slower growth for 2008 than in previous forecasts. Investors will hear more from the Fed on Wednesday when minutes from its most recent meeting will be released.

Investors also will get a look on Friday at the Philadelphia Federal Reserve's manufacturing survey, whose poor showing last month set off alarm bells to many on Wall Street that recession was on its way.

"Bad news is we are probably going to be in a recession. The good news is that while rate cuts cannot stop a recession, they can help to reduce the severity," said Al Goldman, chief market strategist at A.G. Edwards. "But after the rally, the dominant trend is still down, and I think that's probably going to be the direction on balance next week."

Earnings, reports

Following the Presidents Day holiday on Monday, investors on Tuesday will receive results from Wal-Mart and look for further insight into how consumers are holding up during the current economic slowdown.

Wal-Mart is expected to report a 10% rise in profit to $1.02 a share on sales of $107 billion, according to analysts polled by Thomson Financial. But in its most recent sales release, the company posted a soft 0.5% gain in same-store sales for January, below expectations of 2% growth.

Chipmaker Analog Devices Inc. (ADI) will post results Wednesday. Utility firm PG&E Corp. (PCG) and financial-software provider Intuit Inc. (INTU) will report on Thursday.

Fourth-quarter earnings growth for companies in the S&P 500 continued to weaken this past week, and now stands at negative 21.1%.

"That was down mostly due to estimate cuts to American International Group Inc. (AIG)," said John Butters, senior research analyst at Thomson Financial.

The insurer reported that its auditor questioned how the company values some of its derivatives. AIG, however, said that it has appropriate controls and procedures in place to value such exposures.

Earnings growth is on track for the worst year-over-year decline since 2001. Of the 480 companies that already have reported results, 27% of them have missed Wall Street's estimates. That's above the long-term average of 20% of companies that post below than expected figures.

The National Association of Home Builders will release its home-builder sentiment index on Wednesday, and the Commerce Department will release its January report on building permits and housing starts. Housing starts are expected remain steady, with 1.01 million homes slated for construction.

Friday's market

The Dow Jones Industrial Average (DJI) ended down 26 points at 12,348.21, but posted a 1.4% rise for the week.

The S&P 500 Index (SPX) rose 1 point to 1,349.99 for a 1.4% weekly gain. The Nasdaq Composite Index (RIXF) fell Friday by 11 points to 2,321.80 but rose 0.7% for the week.

Treasury bonds mostly rose, putting yields under pressure, as investors fled to the safety of government debt on rekindled worries about the U.S. economy and the credit markets.

Crude-oil ended nearly flat at $95.50 a barrel on the New York Mercantile Exchange.

Gold for April delivery fell $4.70 to end at $906.10 an ounce, while platinum futures extended their record-breaking run Friday on persistent worries about supply disruptions in South Africa. Platinum for April delivery soared as high as $2,079.90 an ounce.

LONDON (Thomson Financial) - Oil rallied to a one-month high late afternoon as the ongoing supply spat between the US and Venezuela and expectations for a cold snap sent jitters through the market.

News of an equipment failure at a Delaware refinery operated by Valero added upward momentum to a market already buoyed by supply fears, analysts said.

Prices climbed more than 4 usd a barrel on Friday and were driven still higher overnight after Venezuelan president Hugo Chavez threatened to cut oil supplies to the US yesterday, before slipping into consolidation mode in morning trade.

However, the news is still fuelling buying this afternoon, analysts said.

"The market is very volatile right now," said Alaron trader Phil Flynn. "The weather forecasts continue to be cold, and heating oil is leading us up on this rally. That is adding to uncertainty (over Venezuela) to keep the market pretty well supported."

At 5.10 pm, New York's WTI crude for March delivery was up 2.02 usd at 93.79 usd per barrel, having earlier touched a high of 94.72 usd, its strongest level since Jan 10.

Meanwhile in London, Brent crude for March delivery was up 1.81 usd at 93.75 usd per barrel.

Chavez's claim that he will halt US sales is linked to legal action brought by Exxon Mobil. The oil giant is pursuing the assets of state oil company Petroleos de Venezuela in US, British and Dutch courts as it challenges the nationalisation of a multibillion dollar oil project by Chavez's government.

A British court has issued an injunction freezing as much as 12 bln usd in assets, leading Chavez to threaten to cut off oil supply to the superpower.

"If you end up freezing (Venezuelan assets) and it harms us, we're going to harm you," Chavez said yesterday. "Do you know how? We aren't going to send oil to the United States. Take note, Mr. Bush, Mr. Danger."

Venezuela, the world's fifth-biggest oil exporter, is also the fourth-largest supplier of crude to the US. While analysts earlier discounted Chavez's threats as unlikely to materialise, uncertainty over the president's next move is continuing to unsettle the market, analysts said.

Any prospect of a supply shortfall is likely to strongly propel prices higher. They rallied towards the end of last week on news that political tensions could cut exports from Nigeria by as much as 1 mln barrels a day, and amid fears of reduced production in the North Sea.

"This week's trading focus will continue to gravitate away from economic indicators and the possibility of a recession and toward geopolitical events capable of disrupting export flows from major producers such as Nigeria and Venezuela," said Ritterbusch & Associates head Jim Ritterbusch.

"For now, we continue to view the Nigerian supply situation as likely having a larger near-term impact on global oil balances and as such we expect further Nigerian developments this week to maintain volatility at a high pitch with an upward bias," he added.

LONDON (Thomson Financial) - Copper came off day highs as worries that global economic weakness could crimp demand returned amid sustained falls in global equities. The metal remained up on the day overall, however, still underpinned by LME stock falls.

At 3.12 pm, LME copper for 3 month delivery was up at 7,785 usd a tonne against 7,700 usd at the close Friday.

Earlier the metal touched 7,860 usd, its highest since late October, amid news LME stocks have fallen by another 2,625 tonnes to total 126,300 tonnes. Overall, stocks remain at their lowest since early November, prompting strength in copper.

Offsetting this, however, are worries over the demand outlook.

Finance ministers from major world economies said at this weekend's G7 meeting the impact of the US sub-prime housing crisis may be broader than previously expected.

They estimated write-downs linked to the crisis could reach up to 400 bln usd globally, compared with 120 bln usd reported so far. Global equities have taken a hit as a result.

"We would be surprised if higher (metals) prices can be sustained in the current negative macro environment and especially as there looks to be more scope for demand surprises to the downside," said an analyst at UBS Investment Bank.

They added, however, that they would not take short positions or bets on prices falls either, amid ongoing supply-side problems, notably the lack of power in South Africa and China.

Severe weather in the two countries has damaged the power infrastructure in recent weeks, cutting output at mines and smelters.

Analysts at Fairfax said markets are concerned that when Chinese players return from the Lunar New Year holiday later this week, they will be confronted with supply shortages in copper.

As such the metal should remain well bid this week.

Longer term, however, there is little chance copper demand will remain robust in the face of an ongoing US economic growth slowdown and a possible recession that threatens economies across the world.

"Given the overall poor economic outlook, we would view this rally as an opportunity to put on longer-term strategies to protect against lower prices down the road," said BaseMetals.com analyst William Adams.

He added, however, that he would not try to anticipate a top in metals just yet, especially not in copper, which is at present up 7.5 pct since Wednesday's close.

Elsewhere, lead was up at 2,995 usd a tonne against 2,970 usd at the close Friday, when it clocked up gains of 7.6 pct. Earlier, the metal touched a 2.5 month high of 3,055 usd a tonne.

"Lead market conditions remain very tight, meaning that the lead price can be volatile and squeezed higher," said Commonwealth Bank of Australia analyst David Moore.

Other metals were down, however, on fears over the demand outlook in the face of worsening global economic conditions.

Nickel was down at 27,850 usd a tonne against 28,300 usd, zinc fell to 2,420 usd against 2,450 usd, tin dropped to 16,950 usd a tonne from 17,200 usd, while aluminium edged down to 2,687 usd from 2,695 usd

WASHINGTON (Thomson Financial) - Treasury Secretary Henry Paulson became the third senior official in as many days to call on mortgage lenders and servicers to speed up their efforts to find workouts for homeowners in danger of foreclosure.

In response to questioning in a Senate Budget Committee hearing, Paulson emphatically said, "I'm gonna be all over them," if companies in the mortgage industry are not making maximum efforts to find and help borrowers who face losing their homes when their mortgages reset to higher rates.

Federal Reserve Governor Randall Kroszner and Treasury Under-Secretary Robert Steel both warned mortgage industry executive groups earlier this week that they needed to speed up their efforts for finding and helping endangered borrowers.

He was optimistic that the fast-track programs the administration has worked out with the mortgage industry could be successful. "I will be unpleasantly surprised if we don't find that people who can afford the initial rate are going to be helped," he said.

The refinancing and other programs are aimed at homeowners who have been making their mortgage payments at the initial interest rate, but may not be able to afford the impending higher rates.

LONDON (Thomson Financial) - Oil fell sharply as worries that a looming US recession will crimp demand combined with improved supply side news in the form of better than forecast increases in US energy inventories.

The US Energy Information Administration said earlier US crude stocks rose by 7 mln barrels last week to total 300 mln barrels. Analysts were expecting stocks to rise by only 2.07 mln barrels

Meanwhile gasoline stocks rose by 3.6 mln barrels last week against forecasts for a 1.7 mln barrel rise, while distillate inventory grew by 0.1 mln barrels against calls for a 1.9 mln barrel decline.

"The major figures were all bearish relative to expectations... About the only supportive element is the drop in refining rates, but no one will care when product stocks are rising," said Citigroup analyst Tim Evans.

At 4.06 pm, New York's WTI crude for March delivery was down 1.03 usd at 87.38 usd per barrel, having dropped 1.61 usd to close at 88.41 usd yesterday.

In London, Brent crude for March delivery was down 68 cents at 88.14 usd per barrel.

Prices were steady before the data release, recouping some of yesterday's losses as players scaled back bets on rising US energy inventory and took the view yesterday's selling was overdone.

However, with US energy inventories clearly on the rise and recession fears still at heightened pitch, there is little to tempt players back to the market on the buy side.

"Sharp declines in the service sector indices in both the US and Europe suggest a further deterioration in the global economic condition, with a subsequent drop in demand being a given for the energy markets," said MF Global analyst John Kilduff.

Yesterday, data from the Institute of Supply Management showed activity in the US services sector slumped to its worst level since March 2003. And in the Eurozone, the PMI services reading plunged to its lowest since July 2003.

Kilduff said the data shows "the economic tumour is clearly metastasizing", threatening oil demand at a time when "supplies have apparently begun to replenish".

Oil prices have now fallen more than 12 pct off a record 100.09 usd set in early January, and many analysts are for now ruling out the upside and instead trying to pick a near term floor in prices.

They note that while the economic contagion from the US has only infected Europe so far, there are possible problems on the horizon in emerging economies also.

China is currently grappling with power shortages that have been exacerbated by the worst winter storms in decades. In addition, it might yet soon have to contend with softness in its export markets.

"What is making the slowdown in the US even more painful is that it is starting to spread... Short term we believe we are on track to test key support at 85.82 usd level basis March WTI," said MF Global analyst Ed Meir.

Should this support level be broken, it would constitute a technical break of the longer term uptrend that has been in place since January 2007, noted Meir, who believes such a scenario is likely.

Looking ahead, it is as yet unclear whether OPEC will attempt to support oil prices by cutting output at its production meeting next month. The cartel has so far resisted such moves.

Yesterday, OPEC Secretary General Abdalla El-Badri said the cartel will roll over production quotas in March if market conditions remain as they are currently.

Others in the cartel have indicated otherwise, however.

WASHINGTON (Thomson Financial) - The companies involved in repackaging and selling mortgages into securities or investing in them are lagging in their response to the coming wave of potential foreclosures, a senior Treasury official warned a group of their executives today.

"Progress is being made, but your industry must move even faster," Under Secretary Robert Steel told the American Securitization Forum (ASF) today. "Each additional day it takes to fully implement (these workouts) we are missing homeowners who could have been helped."

Treasury and the ASF developed a set of fast-track tools for finding homeowners in danger of foreclosure when their mortgages reset to higher rates and helping them in to more affordable mortgages or other financing options.

Steel implied that not enough companies are using the plan, and "we expect your industry to hold to its commitment to help more homeowners, faster, by using the ASF framework, and we look forward to seeing the measurements of your success."

Steel's prod to faster action was similar to one made by Federal Reserve Governor Randall Kroszner to the same group on Monday.

While mortgage securitization fostered a greater flow of capital into housing and made home ownership possible for many more people, Steel also said there was a downside to the innovation.

"We must be honest and admit some malfeasance," he declared. "It is clear that in some instances market participants acted inappropriately." Market participants and regulators both have to commit to a reassessment of some practices that had become business as usual in the mortgage industry, Steel said, and that has begun.

LONDON (Thomson Financial) - Oil prices tumbled by over 2 usd on stock market and dollar weakness and ahead of a weekly report due tomorrow expected to show US crude stocks are growing.

More disappointing data from the US, the world's largest economy, exacerbated price-drops already seen in the earlier part of the session. Futures accelerated to the downside as data showed a surprise contraction in non-manufacturing activity which raised concerns over a slowdown in demand.

The strength prices had garnered yesterday, from Middle East and Nigerian geopolitical tensions and from a statement from the White House announcing it will buy more barrels for the US Strategic Petroleum Reserve, faded. Meanwhile thick fog which slowed crude-carrying ships into the Houston Channel cleared -- helping the supply picture today.

"The petroleum markets are coming under renewed selling ... as a rebound in the US dollar and weakness in the stock market present a consistent bearish picture, and traders are anticipating another week of typical seasonal data in Wednesday's (US inventory) data," said Citigroup analyst Tim Evans.

The US Department of Energy's statistical wing, the Energy Information Administration, will release the weekly figures at 3.30 pm London time tomorrow.

In the week to Feb 1, crude oil stocks will have risen 2.07 mln barrels, gasoline will be up 1.7 mln barrels while distillate inventory, which includes heating oil, will have dropped by 1.9 mln barrels, according to analysts polled by Thomson Financial News.

In recent weeks oil has tracked volatile equity markets. Worries of a global slowdown in growth has seen oil lose some 10 pct since hitting a record 100.09 usd at the start of this year.

"The sharp deterioration in the recent US macro statistics will remain the predominant influence on energy prices over the short-term," said MF Global analyst Ed Meir. "Given how weak the recent stats have been looking thus far, and the potential drag they could have on energy demand, sizable price rallies in crude still look very suspect to us and should be sold into."

Iraqi Oil Minister Dr Hussain al-Shahristani, on the other hand, today said OPEC is well aware of a US slowdown, but reckons demand for crude oil will not be hurt in the meantime as Asia's appetite is not likely to abate.

"The indication to us is that there will be a slowdown in the United States. We're not sure if there is going to be a recession," he told Thomson Financial News on the sidelines of a London conference. "We don't think a slowdown in the US will have a significant effect on the demand for oil, particularly because of growth in east and south Asia."

At 4.05 pm, New York's WTI crude for March delivery was down 2.17 usd at 87.85 usd per barrel.

In London, Brent crude for March delivery was down 2.05 usd at 88.41 usd per barrel.

Looking ahead, all eyes will be fixed on equity market volatility which is likely to spill into commodities as traders try to cover losses and hedge against weakness. On the fundamental side, the OPEC cartel will hold a meeting on March 5 to decide on supply levels.

At its gathering last Friday ministers left output unchanged. Officials are sending mixed signals to the market about the next meeting and there seems to be no consensus yet over the decision.

Kuwait has said an increase is on the cards while Venezuela and Iran are likely to support a cut. Others, meanwhile, including Saudi Arabia, the defacto head of OPEC, have said it is too early to reach a decision on output and that stock levels must be monitored in the weeks ahead of the meeting.

LONDON (Thomson Financial) - Gold dipped in late afternoon trade as the dollar rallied against the major currencies in the wake of poor European PMI data, shrugging off a large and unexpected drop in US services sector activity.

Gold has posted several days of losses as investors took profits after its recent sharp rally. At its high, gold was trading some 11 pct above its end-December level -- amid dollar weakness, turbulence in the equity markets and the threat of a US recession.

A bounce in the dollar today has added further pressure to gold prices. The precious metal typically benefits from a weaker dollar, as it is seen as an alternative investment to the greenback.

A decline in oil prices is also undermining sentiment towards gold. Stronger oil is seen as an early indicator of rising inflation, against which the precious metal is often bought as a hedge.

At 3.37 pm, spot gold was trading at 889.68 usd an ounce against 894.80 usd in late New York trade yesterday. On Friday it hit a record high of 936.60 usd.

"Gold prices probed much lower," said Kitco Bullion Dealers analyst Jon Nadler. "As if heeding yesterday's bullish forecasts, the US dollar surged ahead and overcame the 76 mark on the index, while crude oil was seen dropping nearly one dollar to near 89 usd per barrel."

"The yellow metal is now poised to retrace its path to possibly the 850 usd area, although it could also encounter some buying if it reaches the 870 usd level," he added.

Platinum meanwhile was trading at 1,776 usd an ounce, against 1,795 usd an ounce yesterday. The metal hit an all-time high of 1,810 usd in overnight trade on supply outages in major producer South Africa, though profit-taking has since pushed it lower.

A number of major platinum producers were forced to close operations in South Africa after state electricity supplier Eskom asked them late last month to curtail their power consumption. Eskom said it could not guarantee electricity supply if usage was not cut.

"Although Eskom reinstated authority for mines to increase power loads from 80-90 pct, not all producers have been able to ramp up production to normal capacity and furthermore Eskom is unable to guarantee power supply," said analysts at Barclays Capital.

"We forecast platinum prices to average 1,700 usd an ounce in the first quarter of 2008, supported by a market that is set to remain in heavy deficit this year, exacerbated by the historically low levels of inventory."

South Africa is the source of around three-quarters of global output of the white metal.

Among other precious metals, palladium was trading at 408 usd against 425 usd, while silver was at 16.37 usd against 16.74 usd.

LONDON (Thomson Financial) - Platinum stayed close to an all time high struck earlier today as South African mining woes squeezed supply, while gold traded some 4 pct below a record hit late last week.

Platinum also dragged palladium up to a six-year high as the two metals can be used for the same purposes -- jewellery manufacturing and in catalytic converters.

"The most important recent development in the precious metals market is the power crisis in South Africa, which has interrupted mining operations and which, based on our estimates, will visibly alter the supply/demand balances for gold and (especially) platinum this year," said HSBC analyst James Steel, who today upgraded the bank's price forecast for 2008 to 1,650 usd from 1,550 usd.

By 2.32 pm platinum was at 1,775 usd per ounce against 1,769 usd in late New York trades Friday. Earlier this morning, the metal made a new all time high of 1,792.50 usd per ounce.

South African mine production and precious metal output still remains vulnerable to the national power company Eskom's implemented powercuts. Eskom last week said it was able to supply 80 pct of power to gold, platinum, diamond and coal miners having initially promised to meet 90 pct of their needs.

South Africa, the world's biggest platinum producer, supplies around 80 per cent of global platinum output.

"We see yet more upside for platinum," said Standard Bank analyst Walter De Wet.

Platinum has gained some 20 pct in around two weeks.

"We estimate the platinum market will be in a substantial deficit in 2008 due to South Africa's power-related output issues and increasing automotive demand," said Steel at HSBC.

Palladium was trading at 412 usd against 414 usd per ounce, having earlier hit 420.50 -- a six year high.

"Although demand from the automotive sector continues to be impressive, we expect the palladium market to remain mired in surplus as a result of the steady sale of Russian stocks," said Steel.

Gold was trading at 892.43 usd per ounce against 908.80 usd in late New York trades Friday. On Friday gold hit a record high of 936.60 usd.

"There are some downside risks to the gold spot price with futures markets pricing in further gains in the Dow Jones and a decline in net long speculative positions in gold," said De Wet.

Gold could move lower if equity markets rebound as some market players will sell off safer assets and increase their exposure to risk.

"Stock markets have recovered somewhat from their recent battering and markets in Asia and Europe were up overnight and today. The primary reason for gold's weakness remains that it had become overbought in the short term and was due a correction, in the same way the stock markets were oversold in the short term and due a correction," said Mark O'Byrne, director at Gold and Silver Investments.

In other precious metals, silver fell to 16.40 usd an ounce against 16.82 in late New York trades Friday.

Table Of Data On Factory Orders From Commerce

Dollar amounts in billions

                              Dec    Nov      Oct


Factory Orders               441.57  431.49  424.15
Percent Change                 2.3     1.7     0.7
Factory Orders Ex-Defense    428.53  423.66  413.90
Percent Change                 1.2     2.4     0.7
Factory Orders Ex-Trans      370.07  367.33  361.73
Percent Change                 0.7     1.5     0.7
Durable Goods Orders         226.11  215.24  214.26
Percent Change                 5.0     0.5    -0.5
Non-Durable Goods Orders     215.46  216.25  209.89
Percent Change                -0.4     3.0     2.0
Factory Shipments            427.51  428.71  423.12
Percent Change                -0.3     1.3     1.2
Factory Inventories          528.10  524.15  520.49
Percent Change                 0.8     0.7     0.2
Unfilled Orders              808.66  788.66  779.37
Percent Change                 2.5     1.2     1.0

LONDON (Thomson Financial) - Global oil production will struggle to cope with rising demand over the next decade, according to experts gathered today at international think tank Chatham House, for a conference focusing on Middle East energy supplies.

One speaker noted that over the next eight years the world needs to discover and develop an extra 37.5 mln bpd to meet rising demand and diminishing returns from existing oil fields, but that global production is unlikely to increase by even half that amount in the same timeframe.

"China and India are transforming the global energy system by their sheer size and growth," the speaker said.

"Oil demand is set to grow significantly under any plausible scenario. (But) there will be real difficulty in getting production above 100 mln bpd."

Global oil production is currently around 86 mln bpd, but with many existing oil fields given lower returns in recent years, and new reserves becoming more difficult to source, some analysts are concerned oil markets could tighten significantly as rising demand outstrips supply.

Analysts speaking at the event have predicted that national oil companies -- such as PetroChina, Brazil's Petrobras, or Russia's Gazprom -- will take on an increasingly significant role in the market in the coming years.

As oil prices have increased, countries like Russia have tightened the screws on foreign investors, as they aim to take greater control of their country's natural resources.

However, analysts have cautioned against freezing out large international oil companies, instead encouraging a cooperative approach to addressing a potential short-fall in global supplies, saying national companies need to tap the expertise and technology of their private sector rivals.

WASHINGTON (Thomson Financial) - The Bush administration's new budget plan anticipates a budget deficit that is nearly double from last year's estimate, and a deficit in the current fiscal year that is more than 50 pct higher than what was expected last summer.

"The primary reason for increasing deficits in the near term is the President's economic growth package and an expected slowing of receipt growth, due to an expected reduction in corporate tax receipts from recent high levels," the administration said in its budget plan released today. "Another reason for increases in the projected near-term deficits is increasing defense and emergency spending."

For fiscal year 2009, which starts this October, the White House expects a 407 bln usd budget deficit, up from the 213 bln usd it anticipated in July. But the White House indicated that this 2009 deficit could go even higher, depending on the need for new funds for anti-terrorism efforts around the world.

"Actual funding needs for 2009 and beyond will be determined by security conditions in Iraq and Afghanistan, and will continue to be evaluated," the White House said in its budget plan.

For fiscal year 2008, which ends this September, the White House expects a 410 bln usd budget deficit, up sharply from the 258 bln usd deficit it saw last July.

The budget plan sees 3.11 trln usd in spending in fiscal year 2009, the first time the federal budget will have exceeded 3 trln usd. It also sees 2.93 trln usd in spending for the current fiscal year, up 200 bln usd from fiscal year 2007 at a time when it sees federal receipts shrinking by 47 bln usd.

The plan takes into account the roughly 150 bln usd in costs for the economic stimulus package that is close to being approved by Congress, and anticipates that the Bush tax cuts -- soon to expire -- will be made permanent. It also proposes that Americans can invest in their own retirement accounts starting in 2013.

"Taken together, the President's policies are expected to lead to fiscal improvements," the budget said.

But in the meantime, the budget expects larger deficits in the near-term. After fiscal year 2009, the budget sees a 160 bln usd deficit in 2010, and a 95 bln usd deficit in 2011. Together, that's 43 bln usd higher than what was seen last summer.

The budget does not see a return to surpluses until 2012.

The White House also cut back its estimate of the strength of the US economy, as it now expects 2.7 pct GDP growth in 2008. That's down from the 3.0 pct it saw last summer.

It also sees GDP growth of 3.0 pct in 2009, down from the 3.1 pct growth it saw last year.

LONDON (Thomson Financial) - Oil continued lower as fears over a possible US recession continued to spark worries that demand for crude will wane going forward. In addition, prices were also under pressure from reduced buying from funds.

Data out on Friday showed long positions -- or bets on price falls -- from speculators on NYMEX fell 20 pct last week, after dropping 56 pct the week before.

The data "is a concern for those oil bulls as hedge fund money has been a key driver to prices surging so high", said analysts at Sucden. They added that oil was also down on fears over a possible US-led global growth slowdown.

At 1.00 pm, New York's WTI crude for March delivery was down 27 cents at 88.69 usd per barrel, having plunged 2.79 usd to close at 88.96 usd on Friday.

In London, Brent crude for March delivery was down 23 cents at 89.22 usd per barrel.

In earlier trades, oil was up slightly as a rebound in global equities temporarily eased fears over the oil demand outlook.

However, those fears have since resurfaced, with traders still concerned over data out Friday showing that the US economy lost 17,000 jobs in January, recording its first fall since August 2003.

Prices fell nearly 3 pct on Friday because of the data, which even worked to overshadow news that OPEC had opted to keep output levels unchanged for now and was even considering cutting output in March.

The news came out of the OPEC production meeting in in Vienna, where the cartel itself expressed concern over the US economic outlook and its impact on oil demand going forward.

Earlier today, however, senior OPEC ministers downplayed speculation that OPEC is considering cutting output, telling reporters in London that all options are on the table for the March meeting.

OPEC aside, analysts say oil prices could remain range bound in the near term, especially if global equities stabilise on the belief that US policy makers are doing everything in their power to avoid a recession.

The US Federal Reserve has cut rates by a combined 125 basis points over the past two weeks, while Washington is currently fast-tracking the implementation of a 150 bln usd economic stimulus package.

"Undoubtedly price action in the oil markets has tracked equity markets over recent sessions and there is little to suggest that this will change in the week ahead.

"Brent crude is liable to trade within a broad range of 88.80-92.00 usd with a marginal bias to the upside on geopolitical developments in Nigeria and Iran," said Bank of Ireland analyst Paul Harris.

Oil prices have hovered around the 90 usd level for some three weeks now, as Fed rate cuts and below average stockpiles in the OECD region offset US recession fears.

Earlier in January, prices rose to an all-time record of 100.09 usd a barrel.

NEW YORK (AP) - Treasury prices closed higher after a volatile session Friday during which a series of new reports gave a muddled reading of the economy, with the labor force giving up 17,000 jobs last month even as manufacturing rebounded.

"We have competing signals in regard to whether we are in a recession," said T.J. Marta, fixed-income analyst at RBC Capital Markets. "The employment report is recessionary, but the manufacturing data shows expansion. "The market is highly conflicted."

By the afternoon, the market settled into positive territory as investors focused on the contracting labor market. For months, the job market appeared to be holding up although real estate, Wall Street and the mortgage industry were in trouble. But last month's job losses suggest this pillar of the economy may also be losing strength.

The benchmark 10-year Treasury note rose 1/32 to 105 11/32 with a yield of 3.57 percent, down from 3.59 percent late Thursday. Prices and yields move in opposite directions.

The 30-year long bond gained 5/32 to 111 10/32 with a yield of 4.32 percent, unchanged from late Thursday.

The 2-year note advanced 5/32 to 100 5/32 with a yield of 2.04 percent, down from 2.10 percent.

At 5:30 p.m. EST, the 10-year yield rose back up to 3.60 percent; the 30-year yield slipped to 4.31 percent; and the 2-year yield was at 2.07 percent.

The yield on the 3-month note rose to 2.158 percent from 1.96 percent late Thursday as the discount rate advanced to 2.09 percent from 1.92 percent.

The Labor Department reported 17,000 jobs were cut from the payrolls in January, with the losses distributed through government, manufacturing, construction, business services and the professions.

The country has not lost jobs since August 2003 and the news came as a jolt as economists surveyed by Thomson/IFR had forecast 70,000 jobs gains for last month.

There was some mitigating news in the report in the form of upward revisions to December and November jobs growth. The unemployment rate fell to 4.9 percent from 5.0 percent in December but that was due to a shrinking civilian work force.

The news gave some support to Treasurys because investors generally turn to government-backed bonds when they are worried about the economy. It also will be used to build a case that the economy has entered a recession.

On the other hand, the Institute for Supply Management's survey showed a rebound in manufacturing to 50.7 in January from a revised 48.3 in December. All readings above 50 point to an expanding manufacturing sector. The news was especially heartening because many other recent reports have shown a contracting factory sector.

There was limited reaction to other reports. The University of Michigan's final January sentiment reading was 78.4, down from 80.5 at the start of the month. The Commerce Department said construction spending fell 1.1 percent in December, more than the 0.5 percent drop projected by Thomson/IFR.

The jumpy mood in the bond market was compounded by volatility in the stock market, where investors also were absorbed by the complex data stream, as well as by a Microsoft Corp. bid for Yahoo Inc

NEW YORK (AP) - The U.S. dollar rose Friday against the euro and the British pound, helped by rising stock prices and a modest expansion in the U.S. manufacturing sector despite a weak report on jobs.

In late New York trading, the dollar rose to $1.4803 per euro from $1.4877 per euro late Thursday. The dollar jumped to $1.9677 per British pound from $1.9900 per pound.

The dollar also inched up to 106.47 Japanese yen from 106.43 yen.

The dollar rebounded after an industry group reported U.S. manufacturing activity rose in January and helped galvanize Wall Street. The Institute for Supply Management said Friday its index of manufacturing activity rose to 50.7 from 48.4 in December. Wall Street had expected the figure would come in at 47, which would have indicated a contraction of the manufacturing sector.

The single European currency failed to reach a new high after the Labor Department reported earlier Friday that employers cut 17,000 jobs in January as the unemployment rate dipped to 4.9 percent from 5 percent. That sent a signal to currency investors that the euro may not have the legs to go much higher. It had risen nearly 6 U.S. cents since Jan. 22.

Once the euro fell below a previous technical resistance level around $1.4920, investors who were betting on more euro strength decided to give up their positions before the weekend, Carl Forcheski, vice president of foreign exchange at Societe Generale in New York, told Dow Jones Newswires.

The dollar sank to a record low of 1.0734 Swiss francs after the jobs report, according to Dow Jones' Interbank foreign-exchange rates, but recovered to 1.0888 Swiss francs by late afternoon in New York, above 1.0823 Thursday.

Worries about U.S. bond insurers, continuing fallout from the subprime mortgage crisis and a string of interest-rate cuts by the Federal Reserve have kept the dollar down.

The Fed lowered its benchmark rate to 3 percent on Wednesday, its second cut in eight days, putting it well below the euro zone rate of 4 percent and Britain's 5.5 percent.

Lower rates can help jump-start a country's economy, but at the same time weaken a currency as traders transfer funds to assets where they can earn higher returns.

In other New York trading, the dollar fell to 99.38 Canadian cents from 1.0040 Canadian dollars

(Corrects reference to all-time high for April gold futures)

NEW YORK (Thomson Financial) - Commodities prices were sharply lower Friday, highlighted by sharp declines in crude oil and gold futures, amid concerns over the impact on demand from a U.S. recession, especially after disappointing January jobs data.

The Reuters Jefferies CRB Index fell 0.6% to 367.35. The commodities futures market tracker had been up as much as 0.2% at a high of 370.27 earlier in the session. That high just missed the CRB's record high of 370.96 hit on Jan. 14.

March crude futures slumped $1.60 to $90.15 a barrel, paring earlier intraday gains to a high of $92.12 a barrel.

April gold futures dropped $16.30 to $911.70 an ounce, reversing earlier gains of as much as $13.80 to an intraday high of $941.80 an ounce, just shy of the all-time high of $942.20 an ounce hit on Wednesday.

Earlier Friday, the U.S. Labor Department said January nonfarm payrolls fell by 17,000, the first loss in more than 4 years, and missing the median estimate of economists surveyed by IFR Markets for a rise of 58,000.

Bond yields fell and the odds of further interest rate cuts increased, as the weak jobs data overshadowed stronger-than-anticipated data on the manufacturing sector.

In other commodities futures markets, the front month contracts for natural gas slid 3%, copper shed 0.7%, silver lost 0.7%, heating oil gave up 1.9% and reformulated gasoline dropped 2%.

Futures that witnessed gains included platinum, up 0.6%, palladium, up 4.2%.

PARIS -(Dow Jones)- The economic slowdown in the U.S. will affect the rest of the world, French Finance Minister Christine Lagarde said Tuesday.

Testifying before the Senate Finance Commission about the banking crisis that has provoked a credit crunch and rocked global financial markets, Lagarde pointed out, however, that the effect on France will be attenuated to some degree because only 8% of its trade is with the U.S.

"I don't doubt that the slowdown that we can't avoid seeing in the U.S.... will affect all world economies to some degree or another as they are closely related," Lagarde said.

She said she's "realistic" that the French economy is in a sound position to weather the storm, noting high levels of job creation, better levels of household and business confidence in Europe than in the U.S., and much lower levels of household debt.

"If the German economy suffered, it would affect us to an infinitely greater degree than the U.S. is affecting us, all other things being equal," she said.

"Economic activity in the months and years to come will be very probably driven more by the South East Asian economies such as China, India, and to a lesser degree by Indonesia and the Middle East economies," that are growing at annual rate of more than 6%, she said.