* Weak dollar, Fed's indefinite stimulus pledge fuels rally
* Copper, oil at 4-month highs; gold at 6-month peak
By Barani Krishnan and Eric Onstad
NEW YORK/LONDON, Sept 14 (Reuters) - Copper, gold and oil
surged to multi-month highs on Friday after the U.S. Federal
Reserve's move to stimulate the world's top economy spurred
expectations for a fresh wave of investment flows into commodity
markets.
Many analysts were cautious, however, about sustained price
gains in some sectors like industrial metals unless physical
demand picks up.
The Fed said it will buy $40 billion worth of mortgage debt
a month until the U.S. jobs market improves, fueling a rally in
risky assets that have suffered for months from uncertainty on
the global economic outlook.
The dollar index touched a four-month low, making it
cheaper for holders of other currencies to buy commodities
prices in dollars.
Copper futures and Brent crude oil in London both hit
four-month highs as global stocks surged to a 13-month peak.
Gold surged to a six-month high, while grains performed more
modestly.
The bellwether 19-commodity Thomson Reuters-Jefferies CRB
index hit its highest level since early March.
Investors cheered the Fed decision to make its third round
of quantitative easing -- dubbed QE3 -- indefinite. Fed Chairman
Ben Bernanke said the central bank will keep up with bond
purchases until it is able to bring down the unemployment rate,
currently at 8.1 percent.
"The Fed will be indirectly adding more liquidity into the
asset markets and that money will need to go somewhere and part
of it will go into commodities," said Olivier Jakob, at
Petromatrix in Zug, Switzerland.
The positive impact of the Fed's policy move, however,
unless backed by a recovery in demand and economies in Europe
and China, could prove fleeting, other analysts say.
"The Fed's move is certainly bullish for commodities, but I
don't think we want to assume that the bullishness in
commodities is as open ended as the QE3 program itself," said
Vishnu Varathan, market economist at Mizuho Corporate Bank.
"The decisive thing is going to be a question of how things
in the euro zone and China will pan out because if China's
demand doesn't recover as quickly then a lot of this euphoria is
going to fade."
MIDDLE EAST PREMIUM FOR OIL
Other stories that could decide the narrative in commodities
include violence in the Middle East, which has the oil market in
its grip, and extremities in crop weather, which have already
sent U.S. soybean prices to record highs. These factors weren't
present during earlier QE rounds by the Fed in 2008 and 2010.
Escalating anti-U.S. protests over a film demonstrators
consider blasphemous to Islam kept the geopolitical risk of oil
supply disruption in North Africa and the Middle East in focus
on Friday, along with the dispute over Iran's nuclear program.
"The Middle East premium is starting to be thrown into the
oil price a little bit, adding about $5 to the price," said
Jonathan Barratt, chief executive of BarrattBulletin, a
Sydney-based commodity research firm.
Brent crude rose for a seventh straight session,
peaking at a May high of $117.95 a barrel before paring gains to
below $117, or up about 0.6 percent on the day. U.S. crude
futures hit a four-month high of $100.42.
COPPER BIGGEST GAINER
Base metals were the biggest gainers among major
commodities, with three-month copper on the London Metal
Exchange rising as much as 4 percent to $8,408 a tonne,
its loftiest since early May.
U.S. copper futures' key December contract in New York rose
more than 3 percent to above $3.83 a lb, and headed for a weekly
gain of over 5 percent.
Lead and zinc surged to their highest levels
in more than six months and aluminium hit a 5-1/2 month
high.
Attention would now turn to top metals consumer China, which
accounts for 40 percent of copper demand, analysts said.
"We would caution that we remain very skeptical of the
longer-term implications of this. There is a likelihood that the
price gains will not be sustained and prices will fall back
again as the demand situation is still very poor," said Ross
Strachan, economist at Capital Economics.
Gold was on target to extend its winning streak to a fourth
straight week.
Many analysts also expect a correction in gold prices in the
short term, but are still optimistic about a market rebound
before the year-end.
Spot gold rose 0.6 percent to a 6-month high of
$1,777.51 an ounce. It rose 2 percent on Thursday.
"After the move we had, not just yesterday, but over the
last two or three weeks I think it would be natural to look for
a period of consolidation," said Tom Kendall, an analyst at
Credit Suisse in London.
"But certainly going into the back end of this year, I would
be looking for gold to be getting towards at least the $1,850
level."
LESS EXCITEMENT IN GRAINS; WHEAT OUTPERFORMS
Grains markets were comparatively quiet, with corn, soybeans
and wheat prices having rallied far earlier than most
commodities due to the drought that ravaged the U.S. Midwest
farm belt and destroyed much harvest potential.
Wheat outperformed the pack, with the December futures
contract in Chicago rising 2 percent to above $9.20 a bushel.
Soybeans, which hit record highs of nearly $17.90 a bushel
earlier this month, fell in Friday's session, with November
futures a touch lower at below $17.50 as harvest picked up
for the crop.
"I think we're at reality now where we're at harvest," Don
Roose, president of Iowa-based U.S. Commodities, said, referring
to soybeans.
In softs, arabica coffee extended gains to hit a
seven-week high, as softs were swept up in the commodities rally
reacting to the Fed's stimulus plan.
Raw sugar traded above 20 cents for the first time
this month, while cocoa futures were also higher, in line with
riskier assets from shares to commodities.
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