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Miners Slump as U.S. Growth Signs Fuel Tapering Speculation

West Angelas Iron Ore mine
A Rio Tinto Group employee watches as a haul truck drives through a pit at the company's West Angelas iron ore mine in Pilbara, Australia. Photographer: Ian Waldie/Bloomberg

Shares in the world’s biggest mining companies fell to the lowest in almost four months as signs the U.S economy is strengthening increased speculation that the Federal Reserve will reduce its monetary stimulus.

The 108-member Bloomberg World Mining Index dropped as much as 1.2 percent to the lowest since Aug. 8. Antofagasta Plc, the copper company controlled by Chile’s billionaire Luksic family, fell 3.4 percent in London trading, while gold producers AngloGold Ashanti Ltd. and Newcrest Mining Ltd. fell 6.2 percent and 6.7 percent respectively.

U.S. manufacturing unexpectedly sped up at the fastest pace in more than two years in November, according to data yesterday. Service industries, making up the biggest part of the world’s largest economy, continued to expand last month, a Bloomberg survey of economists showed before a report tomorrow. The Fed’s next monetary-policy meeting will take place Dec. 17-18.

“Anyone who might have expected that metal prices would respond positively to the figures, however, was mistaken,” Commerzbank AG said in a note to investors. “The good economic data once again sparked a discussion of whether the Fed might reduce its bond purchases earlier than anticipated after all.”

Rio Tinto Group, the second-largest mining company, fell 1 percent by the close in London trading after it said it will cut capital spending to about $8 billion in 2015, less than half the outlay last year, as it seeks to conserve cash.

Metals Prices

Rio’s cutback is the latest sign that mining companies are seeking to rein in spending as a decade-long boom in metal prices wanes. Vale SA, the biggest iron ore producer, yesterday slashed its investment budget for a third straight year to $14.8 billion, the lowest since 2010.

Minutes of the previous Fed meeting released in November showed that policy makers may reduce the central bank’s $85 billion-a-month debt purchases “in coming months” as the economy improves, a process that is known as tapering. Figures this week may show that the U.S. is on track for the biggest annual gain in payrolls since 2005.

The U.S. economic data has “re-started speculation around tapering earlier than initially anticipated,” Exane BNP Paribas said in a note today. This has led to “profit taking across equities and commodities.”

The Bloomberg World Mining Index traded 0.7 percent lower by 5 p.m. in London, extending its decline this year to 29 percent.

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