A number of commodities including gold and oil slipped further Wednesday as an extension of U.S. tax cuts lifted the dollar, while copper and natural gas rose on a bolstered outlook for economic growth.

The tax-cut deal lowered a perceived need for risk trades, causing investors who had racked up hefty gains in recent sessions to unwind safe-haven plays in assets such as precious metals, all of which gave up substantial ground.

The Reuters-Jefferies CRB benchmark index measuring 19 commodities pulled up from sharp lows earlier in the session, however, to stand almost 0.5 percent higher.

The dollar's gains helped to send oil prices down for a second day. Unexpectedly large increases in U.S. fuel inventories also sparked selling in crude, which had hit a 26-month high early in the previous session.

U.S. crude for January delivery fell 43 cents to $88.26 a barrel by 12:35 p.m. EST (1735 GMT), well off Tuesday's peak of $90.76, the highest since October 2008.

Prospects that U.S. President Barack Obama would push through the tax-cut extension deal helped limit losses, because more money in consumers' pockets could boost energy demand. The energy complex also drew support as wintry weather hit the United States early.

Natural gas futures rallied 4 percent, benefiting from frigid U.S. Northeast and Midwest weather and better economic growth prospects.

Copper prices reversed course to turn positive late in the session, keeping within touching distance of record highs, as worries over tight supplies in an improving demand environment offset the firmer dollar.

At the same time, the planned tax cuts fueled concerns that the U.S. deficit would widen, spiking U.S. Treasury yields and pushing the dollar even higher.

Pau Morilla-Giner, portfolio manager at London and Capital, said: "The main affected area is going to be Treasury bonds. People are expecting higher growth, some increased inflationary expectations, and that means bonds are not going to be as attractive."

"The dollar has been a factor, but the overarching reason why there has been a pull-back is because of the expectation as we approach the end of the year that everyone is going to be reducing positions," Morilla-Giner said.

Some analysts said the tax cuts could boost U.S. gross domestic product growth by as much as 2 percentage points next year. Such views have propelled 10-year U.S. Treasury yields to levels not seen since late June.

Higher yields tend to support the greenback as they reflect stronger growth. They also enhance the attractiveness of some dollar-denominated assets, such as most commodities.

"These tax cuts are regarded as a game changer, which will provide significant support for the U.S. economy next year," said Richard Franulovich, a strategist at Westpac in New York.

Gold prices fell more than 1 percent for a second day as the extended decline in U.S. Treasury prices fueled profit-taking from bullion's record run by investors seeking better yields.