March 10 (Bloomberg) — Rubber declined for a second day after a drop in Japan’s machinery orders eroded investor confidence in the economic recovery, and concern that China may raise interest rates weakened demand.

Futures in Tokyo fell as much as 1.6 percent, retreating further from a one-week high of 297.9 yen per kilogram ($3,309 a metric ton) reached yesterday. The price advanced to 306 yen on Jan. 15, the highest level since September 2008, amid optimism that the global economic recovery will boost demand.

Japanese machinery orders, an indicator of business investment in three to six months, declined 3.7 percent in January from December, signaling that any pickup in capital spending is likely to be slow. China’s inflation probably accelerated and exports climbed in February, according to surveys of economists, increasing the likelihood of the central bank raising interest rates from a five-year low.

“The market was dragged down by concern about China’s monetary tightening,” Kazuhiko Saito, chief analyst at Tokyo- based commodity broker Fujitomi Co., said today by phone. Japan’s machinery data also “raised questions about the strength of its economic recovery,” he said.

Rubber for August delivery, the most-active contract, lost as much as 4.6 yen to 290.5 yen before trading at 293.4 yen on the Tokyo Commodity Exchange at 11:14 a.m. local time.

China’s consumer prices rose 2.5 percent last month from a year ago, the most in 16 months, according to the median of 29 estimates in a Bloomberg News survey before tomorrow’s report. Economists project that the momentum will continue, sending the rate to as high as 4.4 percent during the year, a separate survey showed last week.

China Inflation

Inflation, property speculation and risks for banks are among Premier Wen Jiabao’s prime concerns after a record 9.59 trillion yuan ($1.4 trillion) of loans bolstered growth last year. Central bank Governor Zhou Xiaochuan said March 6 that while stimulus policies must end “sooner or later,” China needs to be cautious in timing an exit because a global recovery “isn’t solid.”

Losses in rubber futures were limited after data showed yesterday that China’s passenger-car sales rose 55 percent in February from a year earlier, Saito said. China, the world’s largest auto market, is also the biggest consumer of rubber.

China’s demand for cars, multipurpose vehicles and sport- utility vehicles increased to 942,900 units last month, the China Association of Automobile Manufacturers said. Total vehicle sales, which include buses and trucks, rose 46 percent to 1.21 million. The data came out after the Tokyo exchange closed yesterday.

China extended subsidies this year for consumers trading in old vehicles and for rural car buyers. Last year, the stimulus policies helped the country overtake the U.S. as the world’s biggest auto market. Consumers also bought more vehicles before the Lunar New Year, which began on Feb. 14.

September-delivery rubber on the Shanghai Futures Exchange gained 0.3 percent to 24,630 yuan ($3,608) a ton at 10:15 a.m. local time.

Source: Bloomberg

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