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Singapore. The dramatic rally in commodity prices showed signs of cooling on Thursday as weakening equities raised doubts about the pace of world economic recovery, pressuring metals down 3 percent, oil nearly 1 percent and grains 2 percent.

As speculation mounted that China may take steps to rein in liquidity, pulling down Shanghai stocks 3 percent, investors rushed to cut positions on fears riskier assets may have been overbought and piled into safe-haven gold.

Oil eased toward $71, paring gains of nearly 1 percent in the previous session, after US government data showed a surprise decline in distillate stocks.

“The market is reacting to subdued equity markets,” said Ben Westmore, commodities analyst at the National Bank of Australia. “The market is reassessing global economic conditions. I think energy demand is still not there to help keep oil above $70 in a sustained manner.”

US light, sweet crude fell 64 cents to $71.33 a barrel, while ICE Brent crude fell 69 cents to $74.82 a barrel.

Employment reports showed a higher-than-expected loss of US private-sector jobs in July, and planned layoffs at firms increased for the first time in six months, suggesting that the American labor market remained weak.

Copper on the London Metal Exchange fell nearly 3 percent after scaling 10-month highs in the previous session, as investors fretted over the health of the global economy. Losses spread to the rest of the complex, with Shanghai copper futures retreating after a five-day rise.

“A lot of people are holding their breath because the gains have been really made off moderately positive fundamentals,” said Mark Pervan, a senior commodity analyst at Australia and New Zealand Bank. “The markets look overheated.”

Three-month copper in London fell $179 to $6,020 a ton, after peaking at $6,235 on Wednesday, its highest since early October.

China’s central bank on Wednesday repeated that monetary policy would remain growth friendly, sticking with its view that the recovery was not solid. But it said that it would use market tools to fine-tune policy after unprecedented loan growth in the first six months of the year.

As the US dollar held near its year lows against the euro, gold inched up. Analysts said bullion would benefit from the weakness in the dollar, which is expected to continue for some time because of the slow speed of economic recovery.

“We’ll see further weakness in the dollar, which is very supportive to the gold market,” said Toby Hassall, an analyst at CWA Global Markets in Australia.

“But in 2009 we have seen gold struggle to maintain its momentum when it got to the high $900s-$1,000. I wouldn’t be surprised if the market fails to break above $1,000.”

Reuters