Commodities Plunge on Concern for China Growth, European Debt

May 4 (Bloomberg) -- Commodity prices plunged the most in two months as slowing Chinese manufacturing and budget gaps in Europe spurred speculation that the global economic recovery will slow, curbing demand for raw materials.

The Reuters/Jefferies CRB Index of 19 raw materials fell 2.3 percent to 271.65 as of 2:38 p.m. in New York, heading for the biggest slide since Feb. 4. Nickel, silver, gasoline and aluminum led the declines. Crude oil dropped the most in three months and copper fell to the lowest price in nine weeks.

Manufacturing in China, the world’s biggest metals user and second-largest consumer of energy, fell to a six-month low, an industry report showed today. U.S. equities dropped the most since February on concern that Europe’s debt crisis will spread beyond Greece and derail growth.

“The two issues causing concern are China and Europe,” said Brian Hicks, who helps manage about $1.5 billion at U.S. Global Advisors in San Antonio. “These events are shocking the commodity markets. People are fleeing from risk and looking to get to the sidelines.”

A surging dollar also eroded demand from investors who buy commodities as an alternative. The greenback rose as much as 1.2 percent against a basket of six currencies and reached a one- year high against the euro.

“Most of the commodities are down today because of the strength in the dollar,” said Bruno Lima, a risk-management consultant at FCStone in Campinas, Brazil. “The Greece factor is weighing heavily.”

Nickel plunged as much as 7.2 percent on the London Metal Exchange, leading today’s declines. After gaining 42 percent in the year through yesterday, the biggest gain among commodities tracked by the CRB, the metal is poised to decline as world supplies climb at the fastest pace in a decade.

Fourteen of the 19 raw materials tracked by the index dropped today. Wheat posted the biggest gains, rising as much as 1.2 percent, on speculation unusually cold weather may damage crops.

--With assistance by Anna Stablum in London and Glenys Sim in Singapore. Editors: Steve Stroth, Michael Arndt.