Copper rose on Monday as confidence in the outlook for growth increased after data pointed to strength in the US economy and a modest rebound in Chinese factory activity, but prices slipped from four-month highs as the dollar gained. Benchmark copper on the London Metal Exchange ended at $8,305 a tonne, up from Friday's close of $8,290 a tonne, but prices eased off four-month highs of $8,346 hit earlier in the session.
LME three-month zinc marked its highest in one year at $2,190 a tonne, while LME nickel hit a four-month high at $18,770. The global economic outlook brightened last week, when data showed US factory activity quickened in January and hiring increased. In the euro zone, a business activity survey suggested the worst of the region's downturn may be over and Chinese factories extended a modest rebound. "If you have acceleration of growth (and) a better outlook for demand, I don't think you have a massive risk of an impending correction. The only thing that's missing is strengthening in the physical market," Merrill Lynch Bank of America analyst Michael Widmer said.
In a sign of improved demand, open interest and volumes of LME copper last week hit the highest this year. But a stronger dollar versus the euro and against a basket of currencies trimmed copper's gains. A strong dollar makes commodities priced in the currency more expensive for holders of other currencies. Sentiment was also dampened by news from Spain where unemployment problems were worsening, while a corruption scandal threatened to engulf Prime Minister Mariano Rajoy.
Copper, used in power and construction, gained nearly 3 percent in January. It ended last week up 3.2 percent, its biggest weekly gains since September. "We think base metals will likely do better over the course of February nd continue to favour lead, tin, copper and zinc in that order," Edward Meir, analyst at INTL FCStone said in a note.
"Although we are constructive on base metals over the short-term, we do not see a return to any bull market type of conditions, as most complexes (apart from lead and tin) are expected to be in surplus," he said, adding that China's metal demand is expected to be steady but not strong.
Markets in China, which accounts for 40 percent of refined copper demand, will be closed next week for its New Year holiday celebrations, and participants do not expect to see an uptick in demand before then. "China is largely out of the market ahead of the Lunar New Year holidays. While the improving macro picture has underpinned metals, there is also the perception that supply availability has increased to maintain the status quo," Societe Generale analyst Robin Bhar said.
LME stocks data out earlier showed a 1,800 tonne dip in copper stocks to 374,200 tonnes, though they remained near their highest since December 2011 and have increased by some 75 percent since October last year. Three-month nickel ended at $18,725 from $18,625 at the close on Friday while tin ended flat at $24,900. Zinc closed at $2,185 from $2,175 while aluminium ended at $2,113 from $2,118. A closing price for benchmark lead was unavailable due to a technical glitch at the London Metal Exchange. It traded at $2,454.75 at 1737 GMT, up from a close of untraded at the close of $2,451 on Friday.
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