Hedge funds trimmed commodity wagers before rebound

Investors cut bets on copper by the most in two months

March 12 (Bloomberg) -- Hedge funds reduced bets on higher commodity prices for the first time in seven weeks after China cut its growth target, just as prices rallied on signs the U.S. economy is improving and Greece is containing its debt crisis.

Money managers reduced combined bullish positions across 18 U.S. futures and options by 1.1 percent to 1.17 million contracts in the week ended March 6, Commodity Futures Trading Commission data show. Investors cut bets on copper by the most in two months and those on oil by the most since December. China uses more copper and energy than any other nation.

Commodities fell 1.5 percent in the week ended March 6, a day after China cut its economic-growth target to 7.5 percent, from 8 percent, the lowest since 2004. Prices rebounded 2.1 percent in the following three days, extending this year’s advance to 9.7 percent, as Greece and bond investors agreed to the biggest sovereign restructuring in history and the U.S. added more jobs than economists were expecting.

“The economy is looking better, and there’s a general risk-on kind of sentiment,” said Mihir Worah, who manages Pacific Investment Management Co.’s $22 billion Commodity Real Return Strategy Fund from Newport Beach, California. “How do I think investor sentiment is? Certainly, they’re voting with their money, and we’re seeing steady inflows into our funds.”

Heating Oil

The Standard & Poor’s GSCI Spot Index of 24 commodities rose 0.4 percent last week, rebounding from a 1.6 percent decline, led by cocoa, gasoil, heating oil and crude. West Texas Intermediate fell 1.7 percent in the period covered by the CFTC report before advancing 2.6 percent in the following three days. Open interest, or contracts outstanding, across the members of the S&P GSCI expanded 0.6 percent, compared with a 0.1 percent contraction a week earlier, data compiled by Bloomberg show. Today, the S&P GSCI gauge fell 0.4 percent to settle at 704.27 in New York.

The MSCI All-Country World Index of equities fell 2.7 percent in the first two days of last week before rebounding 2 percent in the next three days, for a weekly drop of 0.7 percent. The dollar rose 0.8 percent against a basket of six major trading partners in the week, and Treasuries lost 0.3 percent, a Bank of America Corp. index shows.

China will expand 8.5 percent this year, from 9.2 percent in 2011, according to the median of 21 economist estimates compiled by Bloomberg. That’s almost four times the projected pace of the U.S. and compares with an estimated 0.4 percent contraction in the economy of the 17-nation euro region.

Next page: Emerging markets, metals and oil

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