An advance in the US dollar, compounded by heightened concerns about a sharp drop in demand for raw materials, sent commodities prices plunging on Monday.

Gold prices dipped below $820 an ounce for the first time in a month, while oil prices sank below $40 a barrel as investors' were gripped by fears about the economy and a subsequent downward spiral in prices.

While there were no economic reports issued Monday, and very little corporate news, investors were skittish ahead of corporate earnings reports, which begin in earnest this week and are expected to show meagre profits at best.

Many analysts expect companies to indicate continued weakness through the end of the year. If companies are struggling, the recession may last longer than the market had anticipated.

Also Monday, the dollar gained strength against other major currencies, including the euro and the British pound, ahead of an anticipated rate cut this week by the European Central Bank. The ECB is widely expected to reduce its interest rate from the current 2.5 percent when it meets Thursday. That would follow a cut by the Bank of England last week. The British central bank lowered its rate by half a percentage point to 1.5 percent, the lowest level in the bank's 315-year history.

As central banks around the world cut rates amid a worsening global recession, the US dollar has benefited. Lower rates can help jump-start an economy, but weigh on a currency as investors seek higher returns elsewhere. Still, the Federal Reserve has cut its benchmark interest rate to near zero and expects to keep rates low for some time, which could pressure the dollar.

Commodities, particularly gold, are sensitive to the direction of the dollar as they are often used as a hedge against inflation and a weak greenback.

"The dollar being supported here over past several weeks has pressured commodities as a whole," said Dave Meger, vice president of metals trading at Alaron Trading Corp Meger said he expects a firm dollar and a fear of rapidly falling prices to continue to weigh on the commodities market for most of 2009.

Gold for February delivery dropped $34 to settle at $821 an ounce on the New York Mercantile Exchange, after falling to as low as $817.10 earlier in the session.

Other precious metals prices also tumbled. March silver fell 57 cents to $10.75 an ounce, while March copper futures fell 7.1 cents to $1.4885 a pound.

Energy prices fell on the Nymex as the strained economy outweighed factors that would normally boost the market, including turmoil in the Mideast and signs that OPEC was implementing large-scale production cuts.

Light, sweet crude for February delivery fell 3.24, or nearly 8 percent, to settle at $37.59 a barrel.

On Wall Street, stocks fell as declining commodity prices dragged energy stocks lower and reinforced fears that a slowing economy will further erode corporate profits. The Dow Jones industrials fell 125 points, or 1.5 percent, while broader indexes fell more than 2 percent.

The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 2.34 percent from 2.36 percent late Friday.

Grain prices dove on the Chicago Board of Trade after a mostly bearish report from the U.S. Department of Agriculture. Final 2008 production estimates for corn were about 120 million bushels higher than expected and about 50 million bushels higher than expected for beans.

The USDA also cut the amount of corn it thinks will be used to produce ethanol this crop year to 3.6 billion bushels from 3.7 billion. The agency also cut its U.S. corn export estimate for this crop year to 1.75 billion bushels from 1.80 billion.

Corn for March delivery fell 30 cents to $3.8075 a bushel.

March wheat futures fell 60 cents to $5.6950 a bushel, while March soybeans shed 70 cents to $9.66 a bushel.