Commodities Rise, Dollar Declines After China Keeps Interest Rates on Hold

Commodities rallied and the dollar weakened after China refrained from increasing interest rates. U.S. stocks erased gains, and Treasuries rose before tomorrow’s Federal Reserve statement on the economy as 10-year note yields near a six-month high attracted investors.

The Standard & Poor’s GSCI Index of commodities advanced 1.3 percent at 5 p.m. in New York as copper surged to a record high of $9,248 a metric ton in London. The euro rose 1.3 percent to $1.3391 as the dollar slumped against 15 of 16 major counterparts. The S&P 500 wiped out a 0.5 percent rally in the final 72 minutes of trading. Ten-year Treasuries rallied after yields increased to 3.39 percent.

While Chinese inflation accelerated to the fastest pace in more than two years, the central bank kept its benchmark interest rate unchanged. The helped boost optimism that the world’s fastest growing major economy will keep fueling the global expansion and demand for raw materials.

“There’s a sense of relief that there wasn’t further tightening by officials in China,” said Liam Dalton, president of Axiom Capital Management Inc. in New York, which oversees $1.4 billion.

The Dow Jones Industrial Average of 30 U.S. stocks rose 18.24 points, or 0.2 percent, to 11,428.56 as Caterpillar Inc. advanced 1.9 percent. The S&P 500 reached 1,246.73 before retreating. It approached 1,251.70, the measure’s last closing level before Lehman Brothers Holdings Inc.’s September 2008 bankruptcy sent the global economic into a tailspin. The S&P 500 plunged 46 percent between Sept. 12, 2008, and March 9, 2009, when it sank to 676.53.

France, China

The MSCI All-Country World Index of shares in 45 nations gained 0.7 percent today. Among developed nations, benchmark stock indexes for France, the U.K. and Japan posted the biggest gains with advances of at least 0.8 percent. In emerging markets, China’s main equity gauge jumped 2.9 percent for the biggest increase in two months.

Sugar, orange juice, coffee and silver surged more than 3.3 percent in U.S. trading as the falling dollar helped drive the rally in commodities.

Precious metals will probably give investors the best returns among commodities in the next year, and livestock the worst, Goldman Sachs Group Inc. said. Precious metals will advance 28 percent over 12 months and livestock 4 percent, London-based Jeffrey Currie, Allison Nathan and other Goldman analysts said in a report.

Orange-juice futures jumped to the highest since May 2007 after Florida, the world’s second-biggest citrus grower, declared a state of emergency amid severe cold and the prospects of crop damage.

Treasury 10-year notes advanced, driving yields down by four basis points, or 0.04 percentage point, to 3.28 percent. They advanced as a federal judge ruled against the U.S. health- care overhaul, easing concern that the government will struggle to contain record deficits.

To contact the reporter on this story: Nick Baker in New York at nbaker7@bloomberg.net; Inyoung Hwang in New York at ihwang7@bloomberg.net.

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net.

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