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 LONDON: Oil prices rose for the first time in three days on Wednesday ahead of the latest weekly US inventory data, while a weaker dollar boosted gold and copper gained on optimism over company profits.

The growing expectation among investors that the Federal Reserve could lag other central banks in raising US interest rates created a supportive backdrop for commodities, keeping the dollar in check and creating a more favourable investment environment.

Brent crude oil prices rose above $121 a barrel, recovering some of a near-4-percent drop over Monday and Tuesday after the International Monetary Fund and International Energy Agency both voiced concern that high energy prices had begun to erode demand.

"There have been plenty of negative factors for oil in the last 48 hours," Ben Le Brun, Sydney-based analyst at CMC Markets said. "It's probably not a bad thing as inflation is the biggest buzzword around the market."

Brent futures were last up nearly 1 percent at $122 a barrel ahead of the release of inventory data from the US government's Energy Information Administration, which is expected to show a rise in crude inventories for a sixth week.

Goldman Sachs' warning of an oil price reversal on Tuesday, followed its trading recommendation the day before to close positions in crude, copper, platinum and some agricultural futures, triggering a broad sell-off across commodities.

Several key forecasters, including the International Monetary Fund, the International Energy Agency and OPEC, raised fears global fuel demand is ebbing as consumers shunned expensive oil.

However threats to supply, the latest coming after OPEC member Kuwait temporarily halted oil export operations because of bad weather, would spark rallies, including the one seen on Wednesday, analysts said.

Energy prices at 2-1/2 year highs, along with the sharp rise in the price of agricultural commodities such as cotton, wheat and corn, have deepened concern among investors over the rise in inflation, which has contributed to the 2 percent rise this month in the gold price.

Top asset manager BlackRock cited worry among investors over inflation as one of the key supporting factors for gold.

"Whether interest rates rise or not, we have to look at why they're rising. And if they're chasing inflation, then you're still going to be losing value by owning cash," said Catherine Raw, co-manager of the BlackRock World Mining Fund, in an interview with Reuters.

Spot gold was last up 0.5 percent at $1,461.40 an ounce, having hit a record $1,476.21 on Monday.

The prospect of further declines in the dollar, together with the unrest across North Africa and the Middle East has sharpened investor appetite for gold, which could break above $1,600 an ounce by the end of this year, according to consultancy GFMS in its widely-anticipated Gold Report on Wednesday.

Copper gained some respite from Tuesday's 2.3 percent fall, its largest one-day decline for a month, as confidence in the resilience of corporate earnings as well as a softer dollar helped boost base metals.

JPMorgan Chase & Co. reported a 67 percent rise in first-quarter profits, topping Wall Street expectations, which helped offset the negative impact of higher oil prices and Japan's worsening nuclear crisis.

"Copper lacks momentum but won't fall much as lower prices attract buyers," said Li Ye, an analyst at Minmetals Futures.

"We are stuck between a weakening dollar which helps boost commodities' appeal ... and worries about Japan's crisis and China's tightening."

Benchmark three-month copper prices on the London Metal Exchange were last flat at $9,630 a tonne.

In grains, Chicago Board of Trade wheat futures rose by 0.7 percent to $7.60 a bushel, while corn was also up 0.7 percent at $7.54 a bushel.

Some in the market linked the previous session's sell-off across the commodity markets to Japan upgrading the severity of its nuclear crisis to the same level as the 1986 Chernobyl disaster, the world's worst nuclear accident. Japan is the world's top importer of corn and a major buyer of wheat and soybeans from the United States.

Copyright Reuters, 2011

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