Tokyo rubber climbs to 15-month high on oil rally

Natural rubber futures in Tokyo, the global benchmark, climbed to their highest in more than 15 months as crude oil rose to a record for a third day, prompting the investors to buy commodities as a hedge against inflation.

Crude oil rose above $93 a barrel in New York after Mexico shut down a fifth of its production because of a storm and the dollar fell to a record low against the euro ahead of a Federal Reserve meeting this week.

"Investors were buying rubber as crude oil topped $93 and gold rose beyond $790,'' said Shuji Sugata, research manager at Mitsubishi Corporation Futures & Securities in Tokyo.

"Money is flowing into commodities amid expectations that Fed will lower the interest rates,'' he said.

Natural rubber for April delivery rose as much as 9.5 yen, or 3.3 per cent, to 300 yen a kilogram ($2,628 a metric tonne) on the Tokyo Commodity Exchange, the highest for the most-active contract since July 6, 2006. It closed up 7.2 yen at 297.7 yen.

Commodities futures drew support from prospects that Fed will reduce its 4.75 per cent overnight lending rate between banks by at least a quarter-percentage point on October 31, said Jun Nishimuta, an analyst at Kanetsu Asset Management in Tokyo.

"Investors are shifting money into commodities'' as lower interest rates and a weakening dollar make dollar-based assets less attractive, Nishimuta said by phone today.

The dollar fell as low as $1.4438 a euro, the weakest since the introduction of the European currency in 1999, before trading at $1.4425 at 5:54 pm Tokyo time.

Rubber futures were bought as output in Thailand, the world's largest producer and exporter of the commodity, slowed after wet weather disrupted plantation work, Nishimuta said.

Volumes of the raw material traded on three major markets in Thailand "" Hatyai, Surat Thani and Nikon S Thammarat "" averaged 110.5 tonnes a day in the week ended October 26, down 26 per cent from the average of 148.6 tonnes a week earlier, according to the web site of Southland Rubber, a Thai rubber shipper.

"I believe the volume last week was about one-third of the average volume a year earlier,'' Nishimuta said. Natural rubber futures for January delivery on the Shanghai Futures Exchange gained 515 yuan, or 2.3 per cent, to settle at 22,840 yuan ($3,055) a tonne.