Oil rises on Iran supply fears

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NEW YORK (Reuters) - Oil scored its biggest gain in a month on Tuesday after escalating tensions between Iran and the West, and wheat and cocoa prices also rose sharply to help push commodities broadly higher.

Gold and copper fell, extending the previous day's sell-off, as the dollar's rally outweighed any potential for a rebound in metals priced in dollars. The U.S. currency hit an 11-month high against the euro on fear of more credit rating downgrades in the euro zone.

The 19-commodity Thomson Reuters-Jefferies CRB index .CRB rose 1 percent, making up for most of its loss in the previous session. U.S. crude oil, which accounts for nearly a quarter of the CRB's weighting, drove the rebound.

Oil prices jumped nearly 4 percent in London and New York at one point, surprising traders.

"currency hit an 11-month high against the euro on fear of more credit rating downgrades in the euro zone.The 19-commodity Thomson Reuters-Jefferies CRB index .CRB rose 1 percent, making up for most of its loss in the previous session"Many struggled to identify a reason for the spike, citing factors that ranged from heightened tensions between OPEC member Iran and the West, to a possible trading error by a dealer.

The surge happened ahead of a policy statement due from the Federal Reserve, which fed rumors that oil could be rallying ahead of a stimulus to be announced by the U.S. central bank. But when the Fed ended its policy meeting later, it did not announce a stimulus. This lack of action hit copper and gold, but oil remained higher on the day.

IRAN FEARS FUEL OIL RALLY

By the close, crude pulled back from session highs, finishing about 2 percent up, with the Iran-related tensions serving as the most probable cause for the rally.

While other commodities markets were disappointed by the lack of Fed stimulus, "I think oil is focused more on Iran and this possibility of a blockage of the Strait of Hormuz," said Dominick Chirichella, senior partner at Energy Management Institute in New York.

Hormuz is the world's most important oil shipping route. A member of Iran's parliament said on Monday the military was set to practice shutting the waterway, located south of Iran.

U.S.

crude settled up $2.37 at $100.14 a barrel, after reaching $101.25. The 2.42 percent jump was the biggest since November 16.

London's Brent crude finished up $2.24 at $109.50 a barrel, after reaching $111.10 intraday. Brent's 2.09 percent gain was its biggest one-day percentage rise since November 28.

WHEAT UP ON SHORT-COVERING, COCOA TECHNICAL REBOUND

Wheat jumped on short-covering after some investors feared the market had fallen too much, too fast -- 11 percent -- over the past month.

"I think a lot of people that have been short wheat are beginning to cover those short positions," said Al Kluis, president of Kluis Commodities, a market advisory service. "Some of the people that made a lot of money in the short side, I would think they would want to take (profit) between now and the end of the year."

Wheat for prompt December delivery settled up 2.8 percent, or 16-1/4 cents, at $5.91-3/4 a bushel on the Chicago Board of Trade.

Cocoa was another agricultural market that gained nearly 3 percent, rallying for a second straight day to pull sharply away from last week's three-year lows.

"Cocoa had an unbelievable technical reversal," said Nick Gentile, head of trading operations at Atlantic Capital Advisors in New Jersey.

Cocoa futures in New York closed up $62 at $2,243 per tonne, after climbing to a session high of $2,265.

At its current momentum, the contract could be on track to reach the 50 percent Fibonacci retracement level at $2,372 per tonne, Gentile said.

(Additional reporting by Robert Gibbons, Gene Ramos, Mark Weinraub and Marcy Nicholson; Editing by David Gregorio)