NEW YORK, May 5 (Reuters) - The euro fell below $1.47 on Thursday as traders unwound some bets in favor of the currency after comments form the European Central Bank President did not signal an imminent interest rate hike.

  The euro fell to a session low of $1.4676, down 0.9 percent on the day and off the session peak of $1.4899. It hit a 17-month high above $1.49 on Wednesday.

  Markets had expected ECB President Jean-Claude Trichet to signal plans to raise rates in June, but traders said his comments were not as hawkish as expected, particularly since he did not use the phrase " strong vigilance" when talking about monitoring inflation.

  That prompted investors to take profits on the euro's recent rise. The currency is up nearly 10 percent against the U.S. dollar this year. (Editing by James Dalgleish)

* Euro to remain strong vs dollar over coming months

  * 22 of 58 have euro at or above $1.50 in forecast horizon

  * Dollar to recover later in year as 1st Fed hike nears

 

  By Ross Finley

  LONDON, May 5 (Reuters) - The U.S. dollar will remain in a chokehold over coming months, thanks to an easy monetary policy out of step with other central banks now fretting over inflation or battling against it, a Reuters poll showed.

  The euro looks set to cling to most of its double-digit percent gains racked up against the dollar this year on expectations of more interest rate hikes in coming months from the European Central Bank -- and none from the Federal Reserve.

  Median forecasts from the poll had the euro at $1.48 by end-May, a little below where it was trading on Thursday, and $1.45 in three months.

  The vast majority of contributors were markedly more negative on the dollar's prospects over the coming months, partly a reflection of where the spot rate has moved since the last poll as usual, but signalling a clear shift in sentiment.

  That said, the majority of analysts polled also forecast the dollar to recover against the euro later in the year as the expected date of the first Fed rate hike approaches, currently pegged for the first quarter of 2012 at the earliest.

  " The view that interest rates will rise at a much faster pace in the euro zone than in the U.S. should represent the main driver for EUR/USD over the coming quarters," said Roberto Mialich, foreign exchange strategist at UniCredit in Milan.

  Increased speculation whether Greece may have to restructure its massive debt pile, timed just as a third euro zone member, Portugal, hammers out the terms of a bailout, so far remains a peripheral issue for the roaring single currency.

  Instead, the euro remains solidly underpinned by powerful economic growth in France and Germany. That has got ECB policymakers tasked with keeping inflation close to or below 2 percent worried about future price rises.

  The ECB is expected to signal later on Thursday another hike as soon as next month after raising its benchmark rate 25 basis points to 1.25 percent in March.

  Demand from central banks has propped up the euro, which made an attempt to reach $1.50 on Wednesday but retreated to close at $1.4821. Twenty-two of 58 forecasters had the euro at $1.50 or higher somewhere in the forecast horizon, compared with only 7 of 66 in the April survey.

 

  FEW REASONS TO BET ON THE BUCK

  While the euro may look overvalued to some, particularly given three of its members have had to go cap in hand to seek international assistance to get their fiscal houses in order, investors have few reasons to bet on dollar strength.

  The Fed still has weeks to go before it finishes off the second leg of its $2.3 trillion bond-purchase programme. Its own books are a sea of red, triggering last month the first outlook downgrade for the U.S. sovereign rating in over 70 years.

  Central banks in emerging markets have also shown signs of backing off the so-called currency wars as the Fed's QE programme nears an end.

  That suggests a green light for the global carry trade, where a cheap dollar is used to fund purchases of higher-yielding assets elsewhere around the globe.

  And the U.S. economic outlook, while much improved from the Great Recession, is moderating. First quarter growth was disappointingly weak for this stage of an economic recovery with so much stimulus behind it, at an annualised 1.8 percent.

  The latest services purchasing managers' survey for April showed a collapse in new orders growth, with activity moderating significantly, coming far below consensus expectations. That suggests no improvement in the U.S. growth outlook.

  There are signs, too, that the dollar has lost some of its traditional safe-haven status.

  A revolutionary wave rippling across the Middle East, a catastrophic earthquake and nuclear accident in Japan and huge bailouts for three euro zone members, have all failed to give the U.S. currency a meaningful lift.

  But strategists equally seem agreed that the euro, which is trading at its highest in more than a year against the British pound, can't cling to its gains beyond this year.

  " We remain bearish on the euro given structural weaknesses and believe upside from ECB rate expectations is fairly limited," said Chris Walker at UBS. (Editing by Catherine Evans)

By Vikram Subhedar and Clement Tan

  HONG KONG (Reuters) - China's stocks fell to a two-month low on Wednesday as investors dumped commodity-related sectors for a sixth straight session, but Hong Kong stocks closed above key chart support, suggesting the market's decline will not accelerate in coming days.

  Utilities, in particular independent power producers, outperformed for a third session in Hong Kong with the sector sub-index closing flat for the day as impending power shortages in China over the summer raise expectations of strong demand for power and possible tariff hikes.

  The Shanghai Composite Index fell 2.3 percent to 2,866 points, while the Hang Seng Index shed 1.4 percent to 23,315.

  At one point China's main stock index hit its lowest in more than two months as resources stocks led a broad decline, tracking an easing in global commodities prices in a market bereft of positive cues amid heightened fears of fresh policy tightening.

  In Hong Kong, China Resources Power Holdings Co Ltd led the charge for utilities, rising 2.9 percent to a six-month high, on over four times its average 30-day traded volume.

  The China Electricity Council, a group representing power firms that operates under the supervision of the State Electricity Regulatory Commission, forecast around 30 gigawatts of power shortfalls nationwide in summer, but 12 of 31 Chinese provinces alone have forecast some 40 GW deficits, similar to the gap in 2004.

  But an absence of support from other heavyweight sectors such as financials, which fell 1.3 percent, and energy, which lost 2.1 percent, pushed the Hang Seng below its 50-day and 100-day moving averages, at 23,450 and 23,433.5 respectively.

  The index did find support just before the close at the 50 percent retracement level of its entire move up from the March low following the Japan earthquake to the 2011 peak of 24,468.6 hit April 8.

  " Its a game of patience at the moment. A few people are getting pretty frustrated that the market is ignoring good news such as earnings," said Tom Kaan, a director at Louis Capital Markets in Hong Kong.

  " At this stage they'd rather lock in gains as some of the long-Aussie and long-commodity trade seems to be unwinding," said Kaan, adding that the next cue for a sustainable leg up for Hong Kong and China is probably going to come from a policy announcement out of Beijing.

  Chinese banks remained on the backfoot despite reporting a robust set of first-quarter results last week.

  ICBC fell 2 percent and China Construction Bank 1.7 percent, followed by oil producer CNOOC, as the top drags on the Hang Seng. CNOOC shares fell 2.6 percent.

  SHANGHAI SLUMPS TO 2-MONTH LOW, FUNDS WARY

  The People's Bank of China said late on Tuesday there is no limit to how high Chinese banks' required reserves may go because it is a key tool in managing the volume of cash in the economy and it must be flexibly applied.

  More talk of tightening by the PBOC and 7-day repo rates starting to climb again above 3% which signals higher funding costs for small, leveraged banks is creating some " noise" in the market, said Christian Keilland of BTIG in Hong Kong in an emailed note.

  The Shanghai energy sub-index underperformed the broader market, losing 4.6 percent compared with a 2.3 percent fall to 2,866.0 on the benchmark Shanghai Composite Index.

  PetroChina Co Ltd, China Shenhua Energy Co Ltd and China Petroleum & Chemical Corp (Sinopec) were the biggest drags, losing 2.2, 5.7 and 2.4 percent respectively.

  " Falling oil prices are affecting oil shares today, dragging along other energy issues," said Haitong Securities analyst Zhang Qi.

  Zhang said funds were unwilling to enter a market that seems stuck in a downtrend since the benchamrk hit its 2011 high in mid-April.

HONG KONG, May 5(Reuters) - Hong Kong shares ended at a five-week low as persistent weakness in energy counters offset gains by some financials, while index futures signalled further downside before the end of the month.

  The Hang Seng Index fell 0.23 percent to 23,261.61, closing below a chart support level. The China Enterprises Index fell 0.46 percent.

  On the mainland, the Shanghai Composite Index managed to eke out a gain, closing up 0.22 percent as banks and steel plays rose after the benchmark's 2.3 percent rout on Thursday. Lacklustre volume continued to suggest that most investors remained on the sidelines.

 

  HIGHLIGHTS:

  * PetroChina Co Ltd , down 2.6 percent, and CNOOC Ltd , down 2 percent, led the sector lower for a seventh session as reports that China may introduce an oil and gas resources tax added to fallout from weaker commodities prices. The energy sub-index has lost 9 percent in the past month.

  * Tencent Holdings Ltd recovered some of Thursday's loss, rising 0.6 percent, partly on short-covering after Chinese social networking company Renren Inc surged 29 percent on its New York trading debut. Bearish bets on Tencent have built up, with 21 percent of total turnover over the past two days sold short, exchange data showed. [ID:nN04185096]

  * It was another strong session for China Resources Power Holdings Co Ltd , which rose 1.03 percent on heavy volume lifting it well into technically overbought territory. It is up 10 percent this week as investors piled in on expectations that acute power shortages in China would result in tariff increases.

 

  THE DAY AHEAD:

  Market players will focus on U.S. payrolls data scheduled for Friday, which is expected to show job growth eased in April and add to weak economic data coming out of the U.S.

  Japanese markets are set to reopen on Friday after the Golden Week holiday and could come under pressure on a stronger yen and play catch-up to weaker global markets. (Reporting by Vikram Subhedar Editing by Chris Lewis)

* Bank results hit European stocks

  * Investors focused on ECB, interest rate differentials

  * Wall Street set for losses

 

  By Jeremy Gaunt, European Investment Correspondent

  LONDON, May 5 (Reuters) - Disappointing results from European banks dragged stocks lower on Thursday while investors waited for the European Central Bank to give hints on the timing of future interest rate rises.

  Wall Street also looked set to open lower, adding to recent equity losses that have accompanied evidence that investors are becoming concerned about global economic growth.

  Eyes were also on commodity markets where copper hit a seven-week low and silver extended losses that have reached nearly 20 percent this week.

  World stocks as measured by MSCI were down almost a third of a percent, particularly dragged down by Europe.

  The FTSEurofirst 300 lost more than three-quarters of a percent after falling 1.4 percent on Wednesday, hurt then by weak U.S. economic data, concern over China's growth outlook and forecast-lagging company earnings.

  Data on Wednesday showed weaker U.S. private hiring than expected in April and a sharper cooling of U.S. service sector growth.

  The big drag on Thursday was from the banking sector.

  British bank Lloyds fell 8.6 percent after it suffered a 1.1 billion hit in Ireland and said it will take a 3.2 billion pound ($5.3 billion) provision to cover it for losses from the mis-selling of protection insurance.

  Societe Generale, France's second-biggest listed bank, lost 4.2 percent after first-quarter results missed expectations.

  Of the 38 percent of companies that have reported first-quarter results on the STOXX Europe 600 Banks index, half have missed expectations so far, according to Thomson Reuters StarMine data.

 

  INTEREST RATES

  For many, though, Thursday was a case of listening for the magic words -- waiting to see if ECB President Jean-Claude Trichet will point to a rate rise in June by mentioning " strong vigilance" in a news conference later in the session.

  The ECB lifted interest rates in April, not only signalling the launch of an anti-inflation programme but creating expectations of rate differentials between the bank and other monetary authorities, notably the U.S. Federal Reserve.

  No change in euro zone rates is expected on Thursday, but overall, as Koen De Leus, strategist at KBC Securities, put it, " there is insecurity in the markets."

  The higher yields available in the euro zone, Australia and elsewhere have weakened the dollar, although it recovered on Thursday from losses earlier in the session.

  The euro traded at around $1.48. Traders said that if Trichet repeats the " strong vigilance" phrase, it could push back above $1.49. But even if he leaves it out, the currency is not seen likely to fall much from current levels given the existing rate differences.

  Currency specialists FxPro said in a note that the euro zone was thriving despite intense pressures.

  " A possible Greek debt restructure, a Portuguese bailout, a sharp decline in Spanish house prices, a Finnish electoral revolt against bailouts -- all have been essentially ignored by the single currency," it said.

  The firm said it was all down to interest rates, German economic strength and increasing demand from Asia FX reserve managers for something other than the " brittle" dollar.

  On euro zone government bond markets, yields on short-term two-year core debt rose to their highest in almost two-and-a-half years.

* Initial jobless claims climb to 8-mth high

  * Oil stocks looking lower

  * Futures off: Dow 72 pts, S& P 9 pts, Nasdaq 14.75 pts (Adds initial claims data)

  By Chuck Mikolajczak

  NEW YORK, May 5 (Reuters) - U.S. stocks were set for a lower open on Thursday as weak labor data rekindled concerns about the strength of the consumer and the economic recovery.

  Initial jobless claims rose to an eight-month high last week, and productivity growth slowed in the first quarter.

  " The (market) momentum already being on the downside, it is going to put some pressure, not so much on the dollar but definitely on the economic expectations for growth," said Marc Pado, U.S. market strategist at Cantor Fitzgerald & Co in San Francisco.

  S& P 500 futures lost 9 points and were below fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures dropped 72 points, and Nasdaq 100 futures lost 14.75 points.

  " We are seeing it hit oil, we are seeing it hit gold, materials. Those groups have been the market leaders. So even though it's good news in the long run if gasoline prices come down, the short term it is bringing down the energy stocks which really were the leaders of this bull market rally," Pado added.

  Exxon Mobil Corp dipped 1.6 percent to $83.48 in premarket trading, and Chevron Corp lost 1.5 percent to $103.15.

  U.S. crude futures fell 2.9 percent to $106.43 and ICE Brent futures lost 3.1 percent to $117.41, while silver was poised for its largest weekly fall in over 20 years.

  Mining company Freeport-McMoRan Copper and Gold Inc dipped 1.6 percent to $50.31 in premarket trade.

  Retail stocks were also in focus as investors digested monthly sales from chain stores for clues on consumer spending. Target Corp edged down 0.4 percent to $49.02 after posting April sales results.

  General Motors Co fell 1.3 percent to $32.60 in premarket trade after the automaker posted first-quarter earnings.

  Whole Foods Market Inc's quarterly profit topped Wall Street's view and the grocer raised its full-year profit forecast. Shares rose 3.8 percent to $61.99 in premarket trade.

  Electronic Arts Inc advanced 5.4 percent to $20.99 premarket after the video game publisher said revenue rose and it raised its quarterly outlook, citing higher sales of games " Crysis 2" and " Dead Space 2."

  Investors awaited company results from Kraft Foods Inc, American International Group Inc and Visa Inc after the close.

  Through Wednesday, with 386 of the S& P 500 companies having reported, 68 percent had profits that beat Wall Street expectations, according to Thomson Reuters data.

By James Mackenzie and Lin Noueihed

  ROME/TRIPOLI (Reuters) - Cash-strapped Libyan rebels won a financial lifeline potentially worth billions of dollars from the United States and other allies Thursday, as forces loyal to Muammar Gaddafi pounded a rebel town in the west.

  U.S. Secretary of State Hillary Clinton said Washington would seek to unlock some of the $30 billion (18 billion pounds) of Libyan state funds frozen in the United States to help the rebel movement.

  Italy, host of a meeting in Rome of the " Contact Group" on Libya, said a temporary special fund would be set up by allied nations to channel cash to the rebel administration in its eastern Libyan stronghold of Benghazi.

  A rebel spokesman in Zintan, southwest of the Libyan capital, said pro-Gaddafi forces had fired about 50 Russian-made Grad rockets into the rebel-held town so far Thursday.

  The spokesman, called Abdulrahman, said the first salvo landed at about 6:45 (5:45 a.m. British time).

  He said NATO air strikes had destroyed at least two government helicopters near Zintan as they were being transported on trucks.

  As the fighting has generally descended into a stalemate, the rebel Transitional National Council (TNC) says it needs up to $3 billion to keep going in the coming months.

  But efforts to unblock Libyan state assets frozen in overseas accounts, or to allow the rebels to get past U.N. sanctions that prevent their selling oil on international markets, have been held up so far.

  Clinton said Washington hoped to change the law to allow it to use some of the more than $30 billion of frozen Libyan assets in the United States to help the Libyan people.

  " I'm pleased to announce that the Obama Administration, working with Congress, has decided to pursue legislation that would enable the U.S. to tap some portion of those assets owned by Gaddafi and the Libyan government in the United States, so we can make those funds available to help the Libyan people," she said.

  As ministers gathered in Rome, Clinton said: " We'll be discussing a financial mechanism, we'll be discussing other forms of aid."

  But there was a cautious response from Britain, which said it had no plans to contribute to the new fund set up for the rebels because it had already made a " very substantial" contribution to humanitarian assistance.

  So far, the rebels have been recognized by France, Italy and Qatar. A rebel spokesman said Thursday that Denmark, Spain and the Netherlands had followed suit, but officials from those countries denied it.

  Thursday's meeting brings together foreign ministers from more than 20 countries including France, Britain, the United States, Italy and Qatar as well as representatives of the Arab League and the African Union.

  Rebel spokesman Mahmoud Shammam told reporters that the rebels only had enough funds to pay for their immediate needs in food, public salaries and medicine until the end of May.

  They needed $2-3 billion dollars in urgent funding, he said.

  " NO ENVELOPE OF CASH"

  The meeting is not expected to address military issues but ministers are likely to restate their confidence in the NATO mission, despite a lack of progress since the initial air strikes drove Gaddafi's forces away from Benghazi in March.

  Signs of impatience with the coalition's lack of coherence have emerged. French President Nicolas Sarkozy is planning a separate conference of the " friends of Libya" in the coming weeks to discuss the future of the country.

  Of particular concern is the fate of civilians in the surviving pockets of resistance to Gaddafi in cities in western Libya such as Misrata and Zintan.

  An aid ship defied shelling by Gaddafi's forces to rescue more than 1,000 people from Misrata but was forced to leave behind hundreds of Libyans desperate to flee the fighting.

  " The boat arrived safely this morning in Benghazi," International Organisation for Migration spokeswoman Jemini Pandya said Thursday.

  Misrata's port is a lifeline for the city, where food and medical supplies are low and snipers shoot from rooftops. In all about 13,000 people have been rescued by 13 ships.

  The IOM hoped to carry out a further evacuation mission, but this would depend on the security situation, Panyda said.

  The United States Wednesday condemned the continued shelling of Misrata and called on Gaddafi's forces to permit the IOM to resume evacuating wounded people from the port.

  The insurgents trying to topple Gaddafi after 41 years in power had hoped for a swift victory, akin to the ousting of the leaders of neighbouring Egypt and Tunisia by popular uprisings.

  But his better-equipped forces halted the rebels' westward advance from Benghazi, and the front line is now largely static.

  The United States, Britain and France, leading a NATO air campaign, say they will not stop until Gaddafi is toppled.

  Britain said it had expelled two more Libyan diplomats from London, days after it ordered the country's ambassador to leave.

  " I ordered the expulsion of the two diplomats on the basis that their activities were contrary to the interests of the UK," Foreign Secretary William Hague said.

  Sunday, Libyan ambassador Omar Jelban was given 24 hours to leave Britain after the British government said its embassy in Tripoli had been attacked.

  The attack on the British mission followed a NATO air raid on Tripoli that the Libyan government said had killed Gaddafi's youngest son and three of his grandchildren.

  (Additional reporting by Arshad Mohammed and Sivia Aloisi Stephanie Nebehay in Geneva, Tarek Amara and Abdelaziz Boumzar in Dehiba, Hamid Ould Ahmed in Algiers Matt Robinson in Tunis Joe Logan in Dubai Mariam Karouny in Beirut Jospeph Nasr in Berlin Writing by Giles Elgood Editing by Andrew Roche)

NEW YORK, May 5 (Reuters) - U.S. stocks opened lower on Thursday as weak labor data rekindled concerns about the strength of the consumer and the economic recovery.

  The Dow Jones industrial average was down 59.94 points, or 0.47 percent, at 12,663.64. The Standard & Poor's 500 Index fell 8.14 points, or 0.60 percent, at 1,339.18. The Nasdaq Composite Index dropped 14.09 points, or 0.50 percent, at 2,814.14.

* Copper falls to lowest so far in 2011

  * Dollar fall fails to lift metals

  * U.S. jobless claims rise

 

  (Updates with official prices, adds comment)

  By Sue Thomas

  LONDON, May 5 (Reuters) - High anxiety about global economic growth knocked copper to its lowest this year on Thursday, sweeping the rest of the base metals complex with it in a broad-based fall across asset classes.

  Tepid economic data from top metals consumers the United States and China, as well as in Europe, have stoked big concerns about growth, and the impact on demand for base metals.

  U.S. jobless claims hit an eight-month high, and productivity growth slowed.

  Copper for three-months delivery on the London Metal Exchange fell to a low of $8,805 per tonne, in its biggest daily fall since early March. It was $8,820.5 in official rings, from $9,124 at the close on Wednesday.

  Tin was the biggest loser, shedding more than 7 percent, to $28,500, its lowest since March, from a last bid of $30,950 on Wednesday. Untraded in ring, it was bid at $28,950.

  " It's a broad-based, risk-off selling momentum that has gathered pace," said Barclays Capital analyst Gayle Berry.

  Oil dropped to around $118 a barrel, more than 7 percent below a peak above $127 hit a month ago, and around 6 percent below its close at the end of last week.

  Silver headed for its biggest weekly drop since the 1980s.

  The 19-commodity Reuters-Jefferies CRB index, a global benchmark for the asset class, has so far shed 3 percent since the end of last week and dropped 1.8 percent on Wednesday -- its sharpest one-day fall in three weeks.

  " Something has spooked the market, sentiment has nose dived and I think the fact that it is sentiment driven is illustrated in that it's not just happening in the base metals," Berry said.

  That " something" , Berry said, could include the prospect of easy monetary policy ending in June, big political developments, including the death of Osama bin Laden, uncertainties about Chinese monetary policy, as well as faltering U.S. growth.

  " Demand for metals appears to be softening and we're seeing evidence of that coming out in the data," Alex Heath, RBC Capital Markets head of base metals, said.

  " These are the kind of numbers that you're expecting to see at the stage now where people are talking of withdrawing money from the system."

  A weak dollar, which is normally positive for metals, provided little support.

  Copper had been trading in a strong inverse correlation with the dollar, but the link has weakened recently.

  Base metals fundamentals also pointed to falling demand, with data on Thursday showing a large build in copper inventories, with big inflows into south Asian locations.

  " For a while people ignored the fundamental news, because so much money was cheap and available," Heath said.

  " But now people are looking at what is going on industrially, particularly from a global recovery perspective, and are thinking this looks a bit overdone, let's lock in some profits."

  Aluminium was $2,685.5 in rings, from a close of $2,750. Zinc, used in galvanizing, was $2,130 from $2,190. Battery material lead was at $2,340 from $2,455 and nickel was at $24,995 from $25,825. (Reporting by Sue Thomas Editing by William Hardy)

* Sell off sets in across broad commodity indexes

  * Brent crude crashes through important $120 level

  * U.S. weekly jobless claims at 8-month highs

  * Trichet comments less hawkish than feared

 

  (Adds fresh quotes, updates prices, adds U.S. jobless data)

  By Claire Milhench

  LONDON, May 5 (Reuters) - Brent crude fell by more than $4 to near $117 a barrel on Thursday as fund managers and traders pulled money from across commodities markets on concerns about interest rate rises and demand destruction.

  At 1318 GMT, Brent crude futures for June were down $3.95 to $117.24, after dipping to an intraday low of $116.55. U.S. crude for June was down $3.45 to $105.79 a barrel after falling more than $4 to an intraday low of $105.11.

  This is the biggest weekly fall for Brent and U.S. crude since the week ended July 4, 2010.

  " Bearish news is hitting the market from every quarter," said John Kilduff, a partner at Again Capital in New York.

  " Germany started us off with a very poor factory reading, then the spike in (U.S.) weekly jobless claims and an apparently less hawkish ECB have combined to accelerate and punctuate the sell-off."

  Oil had trended down all morning following bearish inventory data from the U.S. and discouraging economic indicators on Wednesday, but the real selling kicked in when Brent crashed through an important technical level at $120 a barrel.

  " It's a bit of an exodus," said Rob Montefusco, an oil trader at Sucden Financial.

  Gregory Cain, managing partner at Ebullio, a UK-based commodity fund that trades both futures and physical base metals, said there was an element of profit-taking in the commodity rout after a strong rally.

  " We've had a pretty big sell-off over the last couple of days, and CTAs (commodity trading advisers) have been getting out. It's basically become self-perpetuating."

  A trader with a major bank said much of the selling, which was mirrored in base and precious metals, could be attributed to fund managers pulling out of commodities as the end of the second round of quantitative easing in the U.S. loomed.

  " People won't sit and wait until the end of June when the official bond buying programme ends," the trader said.

  Cain agreed: " We've been trading at these higher prices for such a long time people are starting to talk about no QE3 and what they are going to do in June when QE2 ends."

  The 19-commodity Reuters-Jefferies CRB index, a global benchmark for the asset class, fell 2.05 percent on Thursday.

  Bearish data hit the oil market in both Europe and the United States, with German industrial orders falling unexpectedly in March and U.S. weekly jobless claims rising to their highest level in eight months, cementing the weak economic picture.

  " It does feed into the weakness fears after yesterday's ISM services reports," said James O'Sullivan, chief economist at MF Global in New York.

  " We are beginning to see the impact of high oil prices on oil demand and on the economy," agreed Christophe Barret, an energy analyst at Credit Agricole.

 

  DEMAND DESTRUCTION

  Michael Hewson, an analyst with CMC Markets, said concerns about higher interest rates and demand destruction were taking hold across the commodities complex.

  " China and India are going to be taking a much more aggressive view with respect to inflation at the expense of a short-term fall back in growth," he said. " That's pushing oil prices and commodity prices in general lower."

  The European Central Bank held interest rates at 1.25 percent as expected, but ECB President Jean-Claude Trichet said he continued to see upward pressure on overall inflation, mainly owing to energy and commodity prices.

  He added that he would monitor developments " very closely" but held off using the code words " strong vigilance" , which traders said was a signal the ECB won't hike rates in June.

  The euro sold off against the dollar as a result, and by 1317 GMT the dollar was up 0.62 percent against a basket of currencies. (Additional reporting by Francis Kan in Singapore, Dmitry Zhdannikov in London and Jeffrey Kerr in New York editing by Jane Baird)