Copper bounced on Tuesday as China pumped in an estimated $20 billion to stabilise its equity and currency markets, though worries over slowing demand in the world's top metals user kept gains firmly in check. China stocks ended higher thanks to the huge cash injection, but the yuan fell to a 4-1/2 year low. Stocks slid 7 percent on Monday and trade was suspended nation-wide after surveys showed factory activity shrank again in December.
"The rebound in stocks overnight helped metals ... (but) there's a lot of bearishness over China; a hard landing could be difficult to avoid. We view more downside over the rest of the year," Societe Generale analyst Robin Bhar said. Benchmark copper on the London Metal Exchange ended up 0.8 percent at $4,645 a tonne, having touched a two-week low of $4,591.50 on Monday. The metal used in power and construction shed a fifth of its value last year.
A contraction in China's factory activity for the 10th straight month in December, and at a sharper pace than in November, has dampened hopes that the world's second-largest economy will enter 2016 on a steadier footing. The Caixin/Markit China Manufacturing Purchasing Managers' Index (PMI) slipped to 48.2 in December, below market expectations for a slight pick-up to 49.0 and down from November's 48.6.
"The manufacturing data is the real problem; it's why China stocks sank (on Monday)," one metals trader said. Worries about a seasonal manufacturing lull ahead of the Chinese Lunar New Year holiday are expected to weigh on prices. "We continue to believe that at least the January-February period will be characterised by further pressure on the (base metals) complex," Standard Chartered said in a note. "Improved global demand conditions remain a key requirement for a sustained recovery in base prices. China's economic data so far for December shows no obvious signal of this yet."
Also weighing on sentiment is the dollar, set to post further gains this year thanks to an expected cycle of US interest rate rises. A strong US currency makes dollar-priced metals more costly for non-US investors. Three-month nickel closed up 0.5 percent at $8,550 a tonne, lead fell 1.8 percent to $1,714 and aluminium ceded 0.6 percent to $1,463.5. Zinc gained 0.3 percent to $1,573 and tin lost 1.7 percent to $14,155.
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