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Copper, Zinc Tumble, Oil Extends Drop After China Raises Rate
April 27 (Bloomberg) -- Zinc and copper tumbled and oil extended declines after China raised its key interest rate, prompting speculation increased borrowing costs will curb demand for commodities in the world's fastest-growing economy.
Shares of mining companies such as Xstrata Plc and BHP Billiton also fell after China's central bank raised its one- year lending rate to 5.85 percent from 5.58 percent today, to curb surging investment. The nation's booming economy has fueled a three-year rally in raw materials and metals needed for factories, cars and appliances.
``There is the risk the investment boom in China turns to bust and that would have a knock-on effect on the rest of the world,'' said Julian Jessop, chief international economist at Capital Economics Ltd. in London. ``Higher rates may take off some of the froth from commodities markets which have benefited from the investment boom.''
Copper, which has doubled in the past year, dropped as much as 3.1 percent today. Zinc tumbled as much as 7.3 percent, its biggest decline since February. Oil, which has climbed 38 percent in the past 12 months, fell 1.3 percent. Gold and silver had their first declines in three days.
The rate increase will be effective from tomorrow, the People's Bank of China said in a statement on its Web site. The bank left the one-year deposit rate unchanged at 2.25 percent.
``This is an aggressive move,'' said John Kemp, an economist at Sempra Metals, one of 11 companies trading on the floor of the LME. ``There have been widespread concerns about rapid loan growth, over-investment and rapid GDP growth.''
`Take Out Pressure'
Copper for delivery in three months fell as much as $225 to $7,075 a metric ton and traded at $7,125 at 12:49 p.m. on the London Metal Exchange. Prices yesterday reached a record $7,385. Zinc plunged $175 to $3,185 a ton. Aluminum lost 3.5 percent, or $98, to $2,740.
China's economy, the biggest consumer of most metals, grew 10.2 percent in the first quarter this year, President Hu Jintao said on April 16. Growth was 9.9 percent in all of last year.
``China's tighter monetary policy will hit demand and that will take out pressure on consumption side,'' said Michael Widmer, an analyst with Macquarie Bank Ltd. in London.
Shares of Xstrata, the world's biggest exporter of coal for power stations, fell 121 pence, or 5.8 percent, to 1,960 pence in London, their biggest one-day drop since October 2004. BHP Billiton, the world's largest mining company, dropped 5.1 percent to 1,112.5 pence, while Anglo, the second-largest, slid 5.3 percent to 2,290 pence.
`Going to Hurt'
``It's going to hurt the mining and energy companies that benefited the most from demand'' in China, said Richard Robinson, a Jersey-based fund manager at Ashburton Ltd., which oversees the equivalent of $1.8 billion. ``Investors are going to question whether these stocks are worth paying a premium for.''
Oil for June delivery fell as much as 93 cents, or 1.3 percent, to $71.0 a barrel and traded at $71.30 a barrel in electronic trading on the New York Mercantile Exchange at 12:41 p.m. London time.
Crude oil in New York rose to a record $75.35 six days ago amid concern militant attacks in Nigeria and tension over Iran's nuclear research program will limit supplies.
Silver futures for delivery in May fell as much as 4.3 percent to $12.27 an ounce. It traded at $12.3 an ounce at 12:48 p.m. London time. Silver for immediate delivery fell 3.6 percent, or 47 cents, to $12.34 an ounce. Gold fell $7.6, or 1.2 percent, to $634.40 an ounce.