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 Asia Rubber Falls On Euro-Debt Fears, Wall Street

SINGAPORE (Dow Jones)--Asia rubber extended losses Friday, reacting to Wall Street's plunge overnight, when a harrowing five-minute selloff caused a nearly 1,000-point drop on the Dow Jones Industrial Average, aggravating the rubber market's fears about the ripple effects of euro-zone debt crises.

Tokyo Commodity ribbed smoked sheet 3-grade rubber futures posted losses for a fifth consecutive trading day after hitting the first limit-down of Y20 at the opening. The benchmark contract fell as much as 7.2% to Y259.5 a kilogram--a level not seen since mid-December 2009--as investors exited riskier assets including commodities. The benchmark Tocom October rubber contract settled 6.1% or Y17 lower at Y262.6/kg.

"The market is in a panic today; the serious problems in Europe could continue putting downward pressure on Tocom rubber for some time," a Tokyo-based broker said.

The Tokyo-based broker tipped immediate support for Tocom rubber futures at Y260/kg, but said commercial buying was expected to support the market at Y250/kg.

Fears of contagion from the Euro-zone debt of some of the weaker economies in the union have been looming in rubber markets, so the DJIA's overnight dip spooked investors.

"The plunge in the DJIA caused other commodities to fall, and this spilled over into rubber futures," a Thailand-based trader said.

The DJIA finished 3.2% lower, after plunging 9.2% or 998.5 points at one point in a harrowing five-minute selloff that may have been triggered by a breakdown of trading systems. The major U.S. stock exchanges have said they were looking for trading glitches.

Tocom rubber is oversold now, after being overbought in April, some traders said.

Commodity markets are over-reacting, said Avtar Sandu, manager for Asian commodities with Singapore-based Phillip Futures. "If you take the Euro debt out of the equation, nothing else has changed," he said.

Still, there may be more downside for Tocom rubber, said trade participants, as concerns over the Euro-zone debt continue to weigh on sentiment and the outlook for rubber industrial product demand if the problems spread beyond the region. Trade participants are particularly concerned over whether internal opposition to Greece's austerity measures could hamper rescue efforts.

Fears about the global economic recovery also sent crude oil prices plunging, with the benchmark New York Mercantile Exchange contract settling down sharply overnight in a three-day selloff. Prices were hovering above $77 a barrel towards the end of the Asian day, close to Thursday's settlement. Crude oil is a key component of synthetic rubber, a natural rubber competitor.

Tocom rubber futures were continuing to come off the lows in the night session, with the benchmark October contract trading Y3.5 at Y266.1/kg at 0828 GMT, but traders said that any rebound may not be sustainable unless there are fresh developments that ease concerns about Euro-debt problem countries.

Rubber futures on other Asian bourses have also taken a beating in the wake of the tumble on the bellwether Tocom.

Benchmark natural rubber futures on the Shanghai Futures Exchange shed 2.5% to settle at Y22,235/ton, after falling by as much as 3.6%. Shanghai rubber's fall was also due in part to continuing concerns over China's policy tightening measures.

RSS3 futures on the Agricultural Futures Exchange of Thailand hit the limit-down of THB4.7/kg at the opening. The benchmark AFET December RSS3 contract was last trading down THB2.5 at THB89.3/kg at 0825 GMT.

Rubber futures on the Singapore Commodity Exchange have also fallen, with the benchmark RSS3 June contract 10 U.S. cents lower at 330 cents/kg and the TSR20 June contract 12.2 cents lower at 271.5 cents/kg at 0800 GMT.

The losses in rubber futures recently have also been due in part to market expectations that supplies will increase as major exporter Thailand comes out of the low-output wintering season. Benchmark Tocom rubber futures have fallen more than 20% since hitting a 21-month high of Y338.5/kg on April 16.

However, despite an easing in Thai physical rubber supplies, they are still tight, as latex output has been less than expected, traders in Thailand said.

The continuing tightness hasn't stopped buyers from putting in ever lower bids though, particularly with rubber futures falling so sharply.

At the Thai central markets, prices of unsmoked sheet grade-3 dropped to THB100.1-THB101.41/kg Friday from an all-time high of THB118.5/kg two weeks earlier on April 21.

-By Hui Leng Tan, Dow Jones Newswires, +65 6415 4083; huileng.tan@dowjones.com