(Bloomberg News) Commodities headed for the biggest monthly drop in a year as accelerating inflation in China and the sovereign-debt crisis in Europe fanned speculation economic growth may slow.

The Standard & Poor's GSCI Spot Index of 24 raw materials dropped 6.7 percent this month, the first monthly decline since August and the biggest since May 2010. The index gained 1.4 percent by 2:55 p.m. London time. Silver futures were the worst performer, slumping 21 percent, followed by nickel and cotton.

Commodities ended eight months of gains as central banks raised interest rates to slow inflationary pressure, which climbed to a 32-month high in China, exceeding the government's 4 percent target every month this year. Euro-zone policy makers are trying to control the sovereign-debt crisis that pressured the euro to a monthly loss for the first time in six months.

"The May sell-off is a broad-based risk-averse move coming from a combination of concerns about Europe's debt crisis, China's inflation and U.S. data," Andy Kaleel, chief executive officer of Sydney-based H3 Global Advisors Pty Ltd., which manages about A$600 million ($642 million), said today by phone. "We have seen gains in commodities since 2009 and we have to see the month's declines in that context."

Greek Debt

European Union leaders will decide on a new aid package for Greece by the end of next month, said Luxembourg's Jean-Claude Juncker, who leads the group of euro-area finance ministers.

The region's financial problems aren't confined to Greece and a reorganization of the continent's banking system is necessary, Laurence D. Fink, chief executive officer of BlackRock Inc., the world's largest asset manager, said today in a Bloomberg Television interview.

"The European problem is way beyond Greece," Fink said. "Greece is the most immediate problem. I find it very difficult to restructure Greece without the understanding that we're probably going to have to restructure Ireland and restructure Portugal."

Electricity Prices

The Chinese central bank has raised reserve requirements at banks eight times since November and increased interest rates four times since October. Electricity prices for businesses and farmers in 15 provinces will be higher from tomorrow, the first increase in more than a year, threatening to worsen inflation as the nation aims to curb power shortages that may be the worst on record.

The MSCI All-Country World Index headed for a 2.4 percent drop this month, the most since August. U.S. Treasuries gained 1.5 percent, according to Bank of American's Merrill Lynch index.

Silver for July delivery added 1.8 percent to $38.53 an ounce on the Comex in New York, paring the month's loss to 21 percent, the worst since October 2008. CME Group Inc., the Comex owner, raised margin costs to curb price volatility after the metal climbed to a 31-year-high on April 25. The contract has more than doubled in the past 12 months.

Prices may fall to less than $30 an ounce, Dominic Schnider, an analyst for UBS AG's wealth management research, said in a report dated yesterday. The higher prices "cannot be sustained by industrial demand," he said. Silver is used in jewelry, electronics and photography.

Crude Gains

Crude oil trimmed the biggest monthly decline in a year after a pump-station leak forced the shutdown of the Keystone pipeline that carries oil to the largest U.S. storage hub. Crude for July delivery rose 1.5 percent to $102.06 a barrel in New York, heading for an 10 percent monthly loss.

H3 Global's Kaleel said he remains bullish on commodities, especially farm products, as supply constraints remain in place and demand from China continues to expand.

Data today showed China's Macro-economic climate indices, released by the China Economic Monitoring & Analysis Center and Goldman Sachs Group Inc., climbed to 102.11 in April, a six- month high, while industrial production grew at a slower-than- forecast pace in Japan and South Korea.

India's economic growth rose 7.8 percent in the three months ended March 31 from a year earlier, compared with an 8.3 percent gain the preceding quarter, the Central Statistical Office said today. India's inflation rate is the second-fastest after Russia among major economies.

LME Decline

The Dollar Index, which tracks the U.S. currency against those of six major trading partners, dropped 0.6 percent. Still, it's heading for a 2.2 percent monthly increase, ending five straight months of losses.

The London Metal Exchange index of six major base metals has shed 3.9 percent for the month, the worst for almost a year. Benchmark three-month copper headed for a 1.2 percent drop in May, the third consecutive monthly loss, as stockpiles monitored by the world's largest metals exchange climbed for a sixth straight month to 467,775 tons, the highest since June.

Copper futures gained 0.1 percent to $9,204 a ton. Nickel headed for a 13 percent loss for the month. OAO GMK Norilsk Nickel, the world's largest producer, said May 23 the market will return to balance this year from the 2010 deficit as production increases at a faster rate than consumption.

Wheat Crops

Wheat dropped, eliminating a monthly gain, after Russia, once the second-biggest exporter, said it will allow grain shipments to resume and as rains may alleviate drought in French growing areas.

"A slight improvement in crop weather and the imminent removal" of the Russian ban pushed prices lower, said Luke Mathews, a commodity strategist at Commonwealth Bank of Australia in Sydney.

The benchmark contract for July-delivery dropped as much as 4.4 percent to $7.84 a bushel in Chicago before trading at $8.005 a bushel. Before today, futures jumped 79 percent in 12 months as floods damaged crops in Canada and Australia and dryness threatened output in the U.S. and Europe.

The net-long position of funds across 18 U.S. commodity futures and options jumped 7.6 percent to 1.17 million contracts in the week ended May 24, after holdings plunged 27 percent in previous three weeks, data compiled by Bloomberg from the U.S. Commodity Futures Trading Commission show.

Investors poured $702.8 million into commodity funds in the week ended May 25, the first increase in three weeks, according to EPFR Global, a Cambridge, Massachusetts-based researcher. The previous three weeks had outflows totaling $5.5 billion.