Copper slips on euro zone debt caution

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CopperMine REUTERS

Copper fell on Wednesday as concerns about Spain's debt troubles kept investors cautious, although hopes the Federal Reserve could offer more stimulus for the US economy helped support the outlook for demand and limit falls in base metals.

Three-month copper on the London Metal Exchange (LME) fell to $7,579.50 a tonne at 11:01 SA time, down 0.4 percent from Tuesday's close of $7,609 a tonne.

The metal used in power and construction is down more than 10 percent so far this quarter and is trading 0.3 percent lower for the year to date.

Fears lingered that Spain's debt crisis could spiral out of control, with its soaring borrowing costs showing that a euro zone deal to lend its banks up to 100 billion euros ($126 billion) had not solved its problems or restored investor confidence. It also suggests more aid may be needed to fix its finances.

“The market is worried about the situation in Spain, and there is speculation that they might have to take full advantage of the bailout funds, not just for their banks,” Daniel Briesemann, an analyst at Commerzbank, said.

The US Federal Reserve concludes a two-day policy meeting on Wednesday, and expectations are high that the central bank will extend its bond-buying programme dubbed “Operation Twist” to shore up the economy.

“Expectations are high about further stimulus from the Fed, but if they come up with nothing new or only take minor actions, then the market could be quite disappointed. (Base metals) prices could come under pressure after the statement,” Briesemann said.

The liquidity hit provided by previous doses of Fed stimulus has lifted riskier assets, and financial markets have become highly sensitive to expectations of further moves, with global equities and commodities tending to rise and the dollar coming under pressure when action is seen as increasingly likely.

“We expect that the FOMC will probably say that the downside risks to growth (from global tensions) have intensified and the Committee stands ready to act as necessary, especially to an extreme event in Europe,” ANZ analysts said in a note.

“If the FOMC does ease policy further, we think it is likely to be an extension of 'Operation Twist' rather than additional outright securities purchases.”

Also helping limit falls for base metals, the euro steadied against the dollar ahead of the conclusion of the Fed meeting. A weak dollar makes commodities priced in the US unit cheaper for holders of other currencies.

HAND-TO-MOUTH

In Shanghai, copper prices have climbed 5 percent since hitting an eight-month low in June. The recent drop in prices has encouraged some end-users to restock, in turn helping to draw down copper inventories held at exchange and bonded warehouses.

But analysts have cautioned that Chinese end-users are still buying on a hand-to-mouth basis amid an uncertain economic outlook and sluggish domestic demand.

Copper imports by China, the top consumer of the metal, could fall in the next few months even as the world's second-largest economy gradually recovers, since easier credit will reduce demand for copper used for trade financing.

Tin was at $19,553 from Tuesday's close of $19,530 a tonne, while zinc slipped to $1,887.25 from $1,899 on Tuesday.

Lead fell to $1,909 from Tuesday's close of $1,912.50 and aluminium slipped to $1,920 from $1,925.50. Nickel was at $17,079 from

$17,095 a tonne. - Reuters


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