Euro Hopes Send Commodities Soaring

Commodities bounded higher along with global stocks markets on Tuesday on fresh hopes that European leaders would iron out the region's debt problems.

Spot gold rallied 3 percent, snapping four consecutive sessions of losses as the weaker U.S. dollar helped battered commodities stage a comeback and U.S. crude oil prices rose nearly 5 percent.

``The market is beginning to get the feeling that finally European lawmakers are moving out of their paralysis,'' said Peter Cardillo, chief market economist at Rockwell Global Capital in New York.

``Commodity prices are up across the board. There's hopes a global recession can be avoided.''

The 19-commodity Reuters-Jefferies CRB index <.CRB> was up 2.6 percent on Tuesday afternoon, extending gains from Monday.

Euro zone officials said they were working to increase the size of the region's bailout fund, but Spain poured cold water on talk the fund could grow to 2 trillion euros.

``The right noises by European policymakers did improve market confidence today but this is only short-term. The euro zone debt problem can't be waved away anytime soon and it is still bearish in the longer term,'' said China Futures Co analyst Yang Jun.

The dollar was down around 1 percent against a basket of currencies <.DXY>, making gold and other dollar-priced commodities cheaper for holders of other currencies.

Shares of stocks on major global exchanges were headed for their largest gain in 16 months on Tuesday.

GOLD SURGES

Spot gold rallied as much as 3.1 percent to a high of $1,676.69 an ounce. It had dropped up to 7 percent on Monday to a 7-1/2-month low near $1,530. U.S. gold futures jumped more than 5 percent.

``I think gold's bottomed out here,'' said Credit Agricole analyst Robin Bhar in London.

``Longer term, have all the factors that were bullish for gold really been addressed? Currency debasement, economic imbalances, sovereign debt -- the factors that were there last week are still here today.''

In other precious metals, silver, which slid as much as 16 percent to a 10-month low of $26.04 an ounce on Monday, rose more than 9 percent to a high of $33.48 an ounce.

Three-month copper on the London Metal Exchange surged more than 5 percent to $7,659 a tonne after having tumbled to a 14-month low on Monday on recession fears.

The metal is used in power and construction and has fallen more than 25 percent since hitting a record high of $10,190 in February.

In the event of a global recession, copper is the most ''exposed'' among the industrial metals, Deutsche Bank AG said in a report.

Tin prices were given a boost by smelters in Indonesia's main tin-producing region of Bangka island planning to impose a full export ban on tin ingot from Oct. 1 until global prices recover.

Three-month tin jumped 6.8 percent, while tin premiums for delivery to Europe from the Kuala Lumpur market leapt to $1,180.

OIL RALLIES 4 PERCENT

U.S. crude was up more than 4 percent and as of 12:06 p.m. EDT (1606 GMT) had hit a session high of $84.20 a barrel.

Brent futures rose up to 2.7 percent a barrel to $106.74, its biggest one-day gain since Sept. 7.

Both markets have recovered after falling to seven-week lows and posting weekly losses of more than 7 percent last week.

``Clarity on the euro zone plan is still key, crude prices are swinging back and forth depending on what comments come out of Europe,'' said Victor Say, an analyst with Informa Global Markets in Singapore.

U.S. wheat and corn futures rose nearly 2 percent, extending gains from previous sessions, supported by a weaker dollar and forecasts for tight supplies as drought affects wheat planting.

ICE cocoa futures extended gains from a one-year low of $2,654 per tonne on Monday, fueled by a falling dollar and favorable weather reports for future West African crops.

Raw sugar and arabica coffee extended gains for a second day, consolidating after last week's sell-off.

(Additional reporting by Jane Lee and Manolo Serapio, Jr in Singapore, Amanda Cooper in London and Matthew Robinson, Gene Ramos and Barani Krishnan in New York; Editing by Bob Burgdorfer)