Oil Drops From 10-Month High as Stocks Fall, Dollar Strengthens

Aug. 25 (Bloomberg) -- Crude oil dropped from a 10-month high after U.S. equities slipped and the dollar strengthened, reducing the appeal of commodities to investors.

Most U.S. stocks fell, led by financial companies, after SunTrust Banks Inc. said lenders face more credit losses and commercial real estate may falter through 2010. Oil also declined as investors sought so-called safe-haven currencies such as the dollar in the face of weaker equities.

“There are still bearish factors on the economy,” said Mike Sander, an investment adviser with Sander Capital in Seattle. “Banks are still showing signs of weakness, the economy is staying afloat from federal spending, and there is high unemployment.”

Crude oil for October delivery dropped 49 cents, or 0.66 percent, to $73.88 a barrel on the New York Mercantile Exchange at 9:37 a.m. in Sydney. Yesterday, the contract rose 48 cents to settle at $74.37 after touching $74.81, the highest since Oct. 21. Futures have gained 66 percent in 2009.

The U.S. currency traded at $1.4304 per euro at 6:05 a.m. in Tokyo, after a 0.2 percent gain yesterday. A stronger dollar limits investors’ need for assets to hedge against inflation such as commodities.

“Downward pressure could come from a pull back in equities” and increases in U.S. crude supplies, Sander said.

Stocks Fall

Shares of Japanese and Australian companies traded in New York declined after a gauge of Asian equities posted the steepest rally in more than three months, fanning concern that prices exceed the prospects for company earnings.

The Bank of New York Mellon Japan ADR Price Index, which tracks American depositary receipts of Japanese companies, fell 0.3 percent, its first drop in five sessions. Australia’s S&P/ASX 200 Index futures contract due in September fell 0.5 percent today.

Six stocks fell for every five that rose on the New York Stock Exchange. The Standard & Poor’s 500 Index dropped 0.1 percent and the Dow Jones Industrial Average added 3.32 points, or less than 0.1 percent.

Brent crude oil for October settlement rose 7 cents to close at $74.26 a barrel on the London-based ICE Futures Europe exchange yesterday.