Copper prices were underpinned by a weak dollar and robust industrial production data from China, which boosted expectations of strong demand, traders and analysts said. Aluminium touched its highest level in almost a month at $3,046 per tonne, boosted by high oil prices and worries about supplies from China, while zinc hit $1,850, its lowest in more than two years, on concerns about a surplus this year.
Benchmark copper on the London Metal Exchange ended at $8,088 a tonne in open outcry trade, down $12 from its close on Monday when it touched $8,159, a high since May 28. In New York, copper for July delivery settled down 1.60 cents at $3.6495 a lb on the New York Mercantile Exchange's COMEX division, after dealing between $3.6225 and $3.6870.
"Metals have been following the dollar a bit," analyst Leon Westgate at Standard Bank said. A weaker dollar makes commodities priced in the US currency cheaper for holders of other currencies.
The dollar fell against the euro after US housing starts plunged to their lowest level in more than 17 years in May, reducing the chance of an early Federal Reserve interest rate increase.
"Copper seems to be undecided right now and torn between following the commodities rally or being tied to the economy as a whole," said Zachary Oxman, senior trader with Wisdom Financial in Newport Beach, California. "I don't think you'll see copper make a solid definable trend up until we can get the housing issues behind us and get the economy moving again." Analysts also say sentiment has turned after media reports suggesting market expectations of aggressive rate hikes by the US Federal Reserve are overdone.
"The Fed does seem to be rowing back a little bit ... That will leave the dollar under a little bit of pressure," said John Kemp, economist at RBS Sempra Metals.
In addition, analysts cite Chinese industrial production, up 16 percent in May from a year ago compared with a 15.7 percent gain in April, as a reason for price optimism. "Industrial production growth looks very strong. It suggests that the Chinese are destocking rather than the demand falling off the cliff over there," Westgate said.
Also helping copper prices was a dominant holding - 90 percent - of LME stocks, one reason behind the jump in the premium for cash material over the three-month contract.
The backwardation at $167.50 a tonne is down from above $200 on Monday, but it is still at levels last seen two years ago. Aluminium rose to $3,046 from $2,975 a tonne.
The energy-intensive metal used in power, packaging and transport spiked back above the $3,000-level on worries about supplies from China, the world's top producer and consumer. Zinc ended at $1,875 a tonne from $1,880.
Prices are under pressure from rising output in China, despite disruption stemming from the Sichuan earthquake. A report from the International Lead and Zinc Study Group (ILZSG), which said the market was in surplus by 78,000 tonnes in the first four months of the year, also weighed on prices. Lead finished at $1,865 a tonne from $1,811, nickel at $24,150 from $23,950 and tin at $22,025 from Monday's last quote at $21,945/21,950.
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