NEW YORK, Mar 09, 2011 (Dow Jones Commodities News via Comtex) -- Copper futures sank to their lowest point in more than two months Wednesday as worries about eventual tightening in U.S. monetary policy added to jitters about high oil prices and slack Chinese auto demand.

The most actively traded contract, for May delivery, fell 12.6 cents, or 2.9%, to settle at its lowest price since Dec. 20, $4.2125 a pound on the Comex division of the New York Mercantile Exchange.

"There's this nervousness [that] there's going to be less money floating around," said Sterling Smith, market analyst at Country Hedging.

Copper extended losses after news that bond king Bill Gross unloaded all U.S. government-related holdings, which include Treasurys, in the world's biggest bond fund. Gross, founder and co-chief investment officer of Pacific Investment Management Co., slashed such holdings to zero by the end of February from 12% in January in the $236.93 billion Pimco Total Return Fund (PTTRX).

Some participants interpreted the move as a bet against the likelihood of another round of U.S. Treasury purchases to stimulate the economy after the current $600 billion bond-buying program ends.

That would mean less money available for investing in copper, and the news comes amid speculation about monetary tightening in Europe.

Fretting about the lack of further easy money came as markets were already jittery after a Tuesday report, by Medley Global Advisors, that the Fed could soon reconsider its long-term commitment to its stimulative policy.

Copper, which is widely used in auto manufacturing, was also under pressure on news that China's vehicle sales in February fell 33.09% from January to 1.26 million units, as the weeklong Lunar New Year holiday reduced the number of working days in the month.

As copper fell throughout the day, it triggered preplaced sell orders, exacerbating the declines, said Michael Gross, a broker and futures analyst with OptionSellers.com.

"When you have prices like this, you have to espect extreme volatilty," said Bill O'Neill, a principal with Logic Advisors. "The markets are very emotional."

The losses erased any support from recent London Metal Exchange warehouse inventory declines--they fell 775 metric tons Wednesday, leaving them at 425,725--as worries continued to linger that high oil prices will crimp the global economic recovery.

"Short-term direction will likely be mostly given by the goings-on in the energy markets," MF Global analyst Edward Meir said in a note to clients.

Copper market participants fear a slowdown in global growth would dent demand for copper, an industrial metal widely used in electronics, appliances and buildings.

Concerns about a potential drag on the economic recovery continued to fester as crude hovered around $105 a barrel Wednesday as rebels and forces loyal to Libyan leader Moammar Gadhafi continued to clash. About 1 million barrels a day of the country's oil production is shut down, and little crude is being exported.

Copper settlements (ranges include electronic and pit trading):
May $4.2125; down 12.60 cents; Range $4.1830-$4.3790
Jul $4.2290; down 12.50 cents; Range $4.2020-$4.3900