* Commodity prices sell off, gold under $1,400 an ounce
* U.S. dollar gains on higher risk tolerance
* U.S. factory orders rise in November
* European share gains cut as Wall Street struggles
(Recasts lead, updates with European market close, adds
comment)
By Daniel Bases
NEW YORK , Jan 4 (Reuters) - Crude oil prices tumbled more
than 3 percent on Tuesday and Wall Street indexes slid as
energy shares declined, as a strengthening in the dollar
following surprisingly strong U.S. factory orders spurred
profit-taking after oil's recent rally.
European shares managed to close at a one-week high,
boosted by gains in oil major shares before the price of crude
oil began to slide. Strong manufacturing data from around the
world had boosted commodity prices earlier in the trading day.
Crude oil prices <CLc1> fell $3.10, or 3.39 percent, to
$88.45 per barrel, a day after hitting a 27-month high.
"We had an end of year run-up and now we are getting the
beginning of the year sell-off," said Stephen Schork, president
at the Schork Group in Villanova, Pennsylvania.
The profit-taking overwhelmed more upbeat economic data. An
unexpected increase in U.S. factory orders in November reported
on Tuesday underpinned recent evidence that the economic
recovery was on a sustainable path. Orders excluding
transportation recorded their largest gain in eight months.
[]
Strength in the U.S. dollar added to the commodity
sell-off, as its rising value makes it more expensive to
purchase raw materials. And commodity-related currencies, like
the Canadian and Australian dollars, fell with the decline in
the price of oil.
On Wall Street, weak consumer stocks and a prediction by
Morgan Stanley that the benchmark S&P 500 will lose ground in
2011 weighed on sentiment a day after the S&P 500 and the Dow
hit two-year highs.
Worries that rising costs of commodities such as soy beans
and corn will sap supermarket profits hurt consumer stocks and
dented growing optimism about the economic outlook.
WALL STREET INDEXES FALL
In midday trade the major indexes were all lower. The Dow
Jones industrial average <> fell 30.28 points, or 0.26
percent, at 11,640.47. The Standard & Poor's 500 Index <.SPX>
lost 8.53 points, or 0.67 percent, at 1,263.34. The Nasdaq
Composite Index <> dropped 24.75 points, or 0.92 percent,
at 2,666.77.
Morgan Stanley forecast a base case year-end target for the
S&P 500 at 1,238, below the close for 2010. The firm's
risk-reward scenario for 2011 was "skewed to the negative."
Shares of Supervalu Inc <SVU.N> tumbled 6.7 percent after
Morgan Stanley told investors to cut holdings in the stock,
saying rising food costs will crimp margins.
"We're light on consumer staples. One of our concerns is
commodity prices are going to bite into profits," said Thomas
Villalta, portfolio manager for Jones Villalta Asset Management
in Austin, Texas.
S&P's energy share index fell 1.42 percent <.GSPE>.
Activity across all commodity markets picked up
dramatically as traders returned from holiday, with volume at
mid-session already in excess of any day over the past two
weeks.
Prices for gold, copper and corn fell over 2 percent.
The Reuters-Jefferies CRB index <.CRB> dropped 2 percent in
its sharpest one-day fall since mid-November
"It's a healthy correction in copper," said Sean
McGillivray, vice president at Oregon-based Great Pacific
Wealth Management.
"I would fully expect a little bit of profit-taking by the
institutional investors, especially in the precious metals
sector in the first of the year."
Spot gold prices tumbled below $1,400 an ounce, losing
$35.70, or 2.53 percent, to $1378.10 <XAU=>.
Copper dropped 10.15 cents or 2.28 percent to $4.35 per
pound in New York trade <HGc1>, down from Monday's record
high.
While commodity prices are lower on the day, they remain
near multi-year and record highs.
In currency markets, the euro was down 0.3 percent from
late on Monday at $1.3306 <EUR=EBS> after hitting three-week
peaks at $1.3435.
The dollar gained 0.09 percent to 81.78 yen. Against a
basket of major trading partner currencies, the greenback rose
0.43 percent <.DXY>.
European shares hit their highest closing level in nearly a
week on Tuesday. The pan-European FTSEurofirst 300 <>
index closed 0.86 percent higher at 1,142.02 points.
The MSCI All-Country World index <.MIWD00000PUS> gave up
its early lead to drop 0.14 percent.
Earlier, Japan's Nikkei <> began the year with a 1.7
percent climb to a 7-1/2 month closing high.
U.S. benchmark 10-year Treasuries were up just 3/32 of a
point in price to yield 3.32 percent <US10YT=RR>.
(Additional reporting by Barani Krishnan, Jeremy Gaunt,
Caroline Valetkevitch, Anirban Nag and Brian Gorman; Editing by
Leslie Adler)
