(Bloomberg News) Hedge funds wagered the wrong way on commodity prices for a fourth consecutive week, boosting bullish holdings just before reports showing a contraction in manufacturing from China to Europe drove prices lower.

Money managers lifted combined net-long positions across 18 U.S. futures and options by 2.9 percent to 1.17 million contracts in the week ended March 20, Commodity Futures Trading Commission data show. The Standard & Poor's GSCI Spot Index of 24 raw materials dropped 1 percent last week, led by declines in lead and corn. Orange juice tumbled 11 percent, the most since August.

The S&P GSCI fell to a three-week low on March 22 after reports showed factory output in Germany and France unexpectedly shrank in March and a measure of China's manufacturing was the weakest since November. U.S. government data the following day showed purchases of new homes unexpectedly fell last month, increasing investor concerns about the durability of the world's largest economy.

"There are headwinds to growth right now, and therefore there are headwinds to commodities," said Walter 'Bucky' Hellwig, who helps manage $17 billion of assets at BB&T Wealth Management in Birmingham, Alabama.

The MSCI All-Country World Index of shares fell 1.1 percent last week, with about $607 million erased from the value of global equities, according to data compiled by Bloomberg. The dollar retreated 0.6 percent against a basket of six major trading partners, and Treasuries returned 0.4 percent, a Bank of America Corp. index shows.

Corn, Coffee

Eighteen of the 24 raw materials tracked by S&P fell last week. Corn tumbled 3.9 percent, the most since mid-January, as improving U.S. weather boosted the outlook for crops. Arabica coffee declined to the lowest since October 2010 on March 22 on signs of expanding output from Brazil, the world's top grower.

A preliminary reading in a Chinese purchasing managers' index from HSBC Holdings Plc and Markit Economics dropped to 48.1 this month. Readings below 50 signal contraction. A gauge of euro-region manufacturing fell to 47.7 in March from 49 in February, Markit said March 22.

China's steel output is slowing as the economy focuses more on consumers than large infrastructure projects, Ian Ashby, president of iron ore at BHP Billiton Ltd., the biggest mining company, said March 20. Rio Tinto Group, the second-biggest iron-ore exporter, also sees a slowdown in China, David Joyce, the London-based company's managing director of expansion projects, told a conference in Perth, Australia the same day.

'Petrified' Speculators

"The general concern of a slowdown in China has petrified market speculators," Chad Morganlander, a Florham Park, New Jersey-based money manager at Stifel Nicolaus & Co., which oversees more than $115 billion in assets. "A deceleration in demand from major economies like China will continue to be a thematic concern for investors."

Forecasting moves in commodity markets has become more difficult as price swings have increased, said Peter Sorrentino, a fund manager who helps oversee $14.5 billion at Huntington Asset Advisors in Cincinnati. The 15-day historical volatility on the S&P GSCI was near the highest in two months last week, data compiled by Bloomberg show.

Demand for some raw materials may rebound as China's government adds to stimulus measures to shore up growth, Morgan Stanley analysts led by New York-based Hussein Allidina said in a March 18 report.

China Lending

The People's Bank of China lowered the requirement for reserves at large banks in February for the second time since November to spur lending. The nation decided last week to boost rural credit by cutting reserve ratios for more branches of Agricultural Bank of China Ltd., the nation's third-biggest lender by market value.

While China's growth will slow to 8.3 percent in 2012 from 9.2 percent last year, the expansion will rebound to 8.6 percent in 2013, according to the median of 19 economist estimates compiled by Bloomberg. Premier Wen Jiabao cut the country's annual growth target to 7.5 percent earlier this month, the lowest since 2004. China is the world's biggest energy user and consumes about 40 percent of its copper.

Sales of previously owned U.S. houses held in February near an almost two-year high, a report from the National Association of Realtors showed March 21. Two days later, the government reported that new home sales dropped in February for a second straight month, a sign that the housing recovery may be uneven.

Investment Flows

Investors pulled $127 million out of commodity funds in the week ended March 21, according to Cambridge, Massachusetts-based EPFR Global, which tracks investment flows.

Money managers boosted bets on a copper rally by 20 percent to the highest since August even as prices last week fell by the most in five weeks, the CFTC data show. Inventories monitored by the Shanghai Futures Exchange have more than doubled this year, signaling slowing Chinese demand. Lead dropped 5.4 percent to $1,995 a metric ton in London last week, the biggest decline since December. Corn tumbled 3.9 percent to $6.465 a bushel in Chicago, the most since mid-January.

TD Securities Inc. cut its 2012 price forecasts for most precious and industrial metals last week, citing "diminishing China growth expectations," Bart Melek, the Toronto-based head of commodity strategy, said in a report March 23.

"With China deteriorating, Europe in recession and the U.S. recovery looking uncertain, the picture for commodities is bearish," said Steve Mathews, the chief investment officer of Flintlock Capital Asset Management LLC in New York, which has $116 million in assets under management. "I don't see a lot of impetus right now for commodities to go higher."