Copper hit a one-week high on Monday as weak factory data from China, worries over U.S. jobs growth and Europe's debt crisis cemented hopes that central banks and policy makers in the three regions will take action to boost economic growth.
Three-month copper on the London Metal Exchange, untraded in the rings, was bid at $7,657 per tonne from $7,610 at the close on Friday when it closed the month of August up 0.6 percent. It hit a one-week high of $7,700 a tonne earlier on Monday.
Data out earlier showed a contraction in factory sector activity in China, the world's top copper consumer, intensified in August as both output and new orders dropped while manufacturers cut prices to compete for business.
China's HSBC Purchasing Managers' Index fell to a seasonally adjusted 47.6, its lowest level since March 2009.
The data, the latest evidence of the slowdown in the world's second-largest economy, precedes a Sept. 7 report on U.S. jobs growth which many investors believe is key to any decision on launching another bout of stimulus measures, especially after U.S. Federal Reserve chairman Ben Bernanke expressed concern about employment levels in the country.
Bernanke on Friday left the door wide open to a further easing of monetary policy, saying the stagnation in the U.S. labour market was a “grave concern”, but he stopped short of providing a clear signal of imminent action. The Fed's
next rate announcement is due at its Sept. 12-13 meeting.
In the euro zone, the manufacturing sector contracted faster than previously thought last month, despite factories cutting prices, as core countries failed to provide any support, a survey showed earlier.
“China PMI was weaker than expected but all that's done as with other data in the U.S. and elsewhere is to stoke more hopes of stimulus or easing, that's why commodities and metals are still hogging the recent highs,” said Societe Generale analyst Robin Bhar.
“It's not a good foundation for sustainable increases, it means commodities can rally but that rally will attract speculative selling.”
Copper prices have edged into positive territory for the year, but are still down by some 13 percent from the year's peaks hit in February, with ranges likely to be limited on Monday as U.S. investors are out for the Labor Day holiday.
Underpinning copper, the euro was steady against the dollar, drawing support from expectations the European Central Bank will take bold steps at its Thursday meeting to stem the debt crisis. A stronger euro makes dollar-priced metals cheaper for European investors.
Markets are also expecting the ECB to release details of its new bond-buying plan to ease the region's debt crisis, which many central banks say is the prime cause of the global slowdown in economic activity.
“Market players are evidently pinning their hopes on the Chinese government and central bank implementing stimulus measures,” said Commerzbank in a note.
“We share this view, especially given that China still has plenty of scope to take fiscal policy and monetary measures. Base metals should therefore be able to continue their upswing in the coming weeks and months,” Commerzbank said.
Market fundamentals continued to tighten, also helping copper.
LME copper stocks fell by a hefty 4,625 tonnes to 225,275 tonnes, their lowest point since May 2012. Analysts say the decline in stocks should underpin the metal, though they warn total stocks in China, including unreported stocks in bonded warehouses, continue to rise sharply.
LEAD STOCKS DROP
LME lead prices have also been supported by recent drawdowns from LME stocks. The spread between cash and the three-month contract on the LME hit its narrowest in four months on Friday, reflecting tightening supply that traders said was mostly consumption related.
LME stocks have dropped by almost a third over the past two weeks, and this could trigger a spike in short-term prices in September, traders and warehouse officials said.
Available stocks in LME-registered warehouses have slumped by around 92,000 tonnes, or 32 percent, since Aug. 13, and half of those drawdowns are due for delivery out of Singapore, draining the port of all but 1,725 tonnes of metal.
Three-month lead hit its highest since mid-May earlier, at $1,990.25 a tonne. It was $1,982 in rings from $1,965.
Zinc, used in galvanizing, was $1,858 in rings from a close of $1,841 and stainless-steel ingredient nickel was $16,234 from $15,950.
Soldering metal tin, untraded in the rings, was bid at $19,650 a tonne from a last bid of $19,350 on Friday, while aluminium, also untraded, was bid at $1,898 from a close of $1,902.
Aluminum maker Alcoa Inc. began shutting down its factory on the Italian island of Sardinia on Saturday, laying off hundreds of workers in a region already hard-hit by unemployment and economic crisis.