SINGAPORE, Oct 16 (Reuters) Crude and vegetable oils surged to record highs on Tuesday, while gold hit a 28-year peak, supported by concerns about rising tensions in the Middle East and a struggling dollar.
Fears of Turkish incursions into Iraq, which sits on the world's third largest oil reserves, sent crude prices soaring to record highs in U.S. overnight trading and boosted safe-haven gold to its highest in almost three decades.
The Turkish cabinet asked parliament on Monday for authorisation for attacks against Kurdish separatists in Iraq.
Adding to oil's bullish appeal were expectations that distillate inventories in the U.S. will ease by 300,000 barrels for the week ended Oct. 12 ahead of peak winter demand. S] U.S. crude oil rose 66 cents to hit a record $86.79 a barrel, TOCOM gold futures put in their best performance since 1984 and spot gold hit $762.60, a new 28-year high.
''Fundamentals look very strong, but these markets are vulnerable to profit taking,'' said Mark Pervan, senior commodities strategist at ANZ Bank.
''Oil prices could ease. Last week's 1.7 million barrel surprise decline in crude stocks was at least in part due to a slowdown in imports. That is unlikely to be repeated this week and U.S. crude data may surprise on the upside.'' Pervan added that while he was also bullish towards gold over the next month or two, but record long positions in COMEX gold futures and technical indicators showing bullion was overbought, could spark profit taking.
Agricultural commodities were also strong, led by oils and oil seeds. Malaysian palm oil futures rose 2.7 percent to strike a record, mirroring gains in rival soybean oil and bubbling crude oil.
The benchmark January contract on the Bursa Malaysia Derivatives Exchange rose as much as 73 ringgit to 2,791 ringgit ($828.9) per tonne.
Soyoil futures at the Chicago Board of Trade were strong, hovering near a 23-year high. December soyoil was 2 cents firmer at 40.08 cents per lb at 0626 GMT.
FED WILL ACT The dollar struggled against the euro, stung by dour economic forecasts from Citigroup, raising speculation that the Fed could cut interest rates again.
The euro was at $1.4200 within sight of a record high around $1.4280 touched at the start of the month.
But investors were cheered by comments by Federal Reserve Chairman Ben Bernanke who said U.S. financial markets were healthier following a turbulent summer, but that a full recovery would take time.
He told the New York Economic Club that ''the Federal Reserve will continue to watch the situation closely and will act as needed to support efficient market functioning and to foster sustainable economic growth and price stability.'' The Fed cut interest rates by 50 basis points last month, surprising some in the market who had been looking for a 25-point cut, and re-igniting interest in riskier assets such as commodities.
However, Bernanke's soothing words and the flagging dollar were not enough to shake off caution in industrial metals, which paused after a tentative rally stalled on Monday.
Copper for delivery in three months on the London Metal Exchange eased $14 to $8,136 a tonne after rallying 2.5 percent to $8,261 in the previous session before falling back.
December copper on the Shanghai Futures Exchange fell 0.2 percent to 67,650 yuan ($8,987) after gaining 1.4 percent on Monday.
Sempra Metals economist John Kemp said Chinese investors had wound up a period of long liquidation by the end of last week that had kept Shanghai prices in check, and prices in China and London could rise again.
''The long liquidation in Shanghai appears to have run its course. SHFE gained slightly on Friday and significantly on Monday,'' Kemp said.
''With SHFE prices no longer acting as a brake, the LME looks set to rally strongly over the next couple of sessions as the bulls try to establish new highs at $8,300 and above.'' Australian resource equities reveresed early losses, with BHP Billiton and Rio Tinto both posting modest gains in an otherwise weaker market.
REUTERS DKS DB1250