Copper fell on Thursday as data showed shrinking manufacturing activity in top consumer China fuelled demand fears, but losses were capped by a softer dollar against the euro, which was boosted by optimism about a eurozone debt deal.
Benchmark copper on the London Metal Exchange ended at $9,685 a tonne from $9,755 at the close on Wednesday. The metal used in power and construction is down about 5 percent from a record high of $10,190 hit on February 15.
China's factory sector shrank for the first time in a year in July, a survey showed, feeding worries among the country's main trading partners that its growth is unsustainable.
"The Chinese numbers were very negative; that's what is keeping metals subdued," said Edward Meir, analyst at MF Global. HSBC's China Flash PMI for July dropped by its fastest pace since March 2009 and pointed to a monthly contraction in the country's vast manufacturing sector for the first time in 12 months, the purchasing managers' survey showed on Thursday, while a price sub-index signalled rebounding inflation.
"We are seeing a bit of weakness today despite a weaker dollar and despite the possibility of a preliminary solution of the Euro crisis," said Eugen Weinberg, an analyst at Commerzbank. "This is stemming mainly from China.
Chinese data showing monthly imports of refined copper rose 19.7 percent in June from a 30-month low seen in May, helped support prices.
"On the other hand it is still possible that the Chinese government will continue to tighten its monetary policy given the rising inflation ... this may cool demand for copper," Weinberg said. The euro rallied sharply on signs European officials were nearing a deal to bail out Greece with the help of the private sector, though some investors remained uneasy about the prospect of a short-term default.
"The default question and the rating question is still out there, keeping the market a little bit nervous," Meir said. "We've had a very a very good run this week, it's possible an agreement of sorts has already been priced in."
A Reuters survey published on Thursday showed copper will not trade as high this year as previously thought, with analysts downgrading their price forecasts as global growth for base metals slows from 2010.
Nickel closed at $23,950 a tonne from $24,045 per tonne at the close on Wednesday. A fall in nickel inventories pointed to tightness. Nickel stocks in LME-approved warehouse fell 354 tonnes to 101,574 tonnes, the lowest since late March 2009, data showed.
This, coupled with nickel mining projects delays, is quite supportive for the metal used for stainless steel production in the short medium-term but many large projects will come on stream in 2012-2013 and this will dampen nickel prices, Weinberg explained.
Tin closed at $28,300 from $28,300 while zinc, used to galvanise steel ended at $2,450 from $2,454 Wednesday's close. Battery material lead closed at an unchanged $2,700 and aluminium at $2,540 from $2,536.
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