File photo: Chris Collingridge

London - Copper fell to its lowest level in nearly three weeks on Monday as uncertainty about growth in top consumer China weighed on the outlook for metals demand, but further falls were capped by a weak dollar.

Three-month copper on the London Metal Exchange fell to its lowest level since July 10 at $6,820 a ton in intraday trade, later rebounding to $6,853 a ton at 09h35 GMT, from a last bid of $6,860 on Friday.

The metal is headed for a small monthly gain of 1.7 percent for July following losses of nearly 8 percent in June.

Investors are watching for official data this week from China that gauges activity in its vast manufacturing sector. Last week an initial reading from HSBC showed factory activity at its slowest in 11 months in July.

Uncertainty about the growth outlook in China, which accounts for around 40 percent of global copper demand, weighed on the metal.

“The bigger moves over the next couple of months will probably be on the downside. There is a risk of Chinese imports falling off again. And we have a lot of new supply set to enter the market,” said Gayle Berry, an analyst at Barclays.

He added, however: “There is still a small chance of a break higher in copper because the market is very short and the fundamental copper data is better than people realise.”

Losses in copper prices were stemmed by the dollar's fall to a five-week low against a basket of currencies on expectations the U.S. Federal Reserve intends to keep interest rates low for some time. The Fed starts a two-day meeting on Tuesday.

The US payrolls report will be released on Friday, and the forecast is for 185 000 jobs to have been added in July and a dip in the jobless rate to 7.5 percent. A strong report would support the case for the Fed to start rolling back stimulus.

If the Fed confirms it will reduce its bond purchases by September, that could fuel another commodities sell-off, while a further delay could spur a rally.

“Given the recent run of economic data, there seems little risk of the Fed suggesting that it will be any more aggressive on tapering than current market expectations,” Ric Spooner, chief market analyst CMC Markets in Sydney, said in a note.

“The risk is all the other way, with potential for the Fed to emphasise that it won't reduce its asset-buying program unless unemployment continues to fall.”

In industry news, Rio Tinto has agreed to sell its majority stake in the Northparkes copper mine in Australia for $820 million to China Molybdenum, a Chinese firm making its first foray offshore and into copper.

Rio Tinto also has put on hold all work on an underground expansion of the Oyu Tolgoi copper mine in Mongolia after the government said parliament would need to approve financing for the project, which is expected to cost more than $5 billion. - Reuters