LONDON: Copper prices hovered near two-year highs on Tuesday after strong manufacturing data in China, the biggest consumer, boosted confidence in the demand outlook. A positive mood rippled through markets, lifting global equities, while the yuan jumped to its strongest in 16 months against the dollar, helping metals by making them cheaper for Chinese buyers.

Benchmark copper on the London Metal Exchange (LME) was down 0.5% at $6,762.50 a tonne at 1625 GMT, but within striking distance of a 26-month high of $6,830 hit on Sept. 1. "The Chinese data show there's still a very positive backdrop for industrial metals and copper in particular," said Capital Economics analyst Kieran Clancy.

He said traders had already priced in a strong rebound in Chinese demand, with copper up more than 50% from a low in March, but that prices would continue to rise at a slower pace. China's industrial output accelerated the most in eight months in August and retail sales grew, suggesting the economic recovery is gathering pace.

US factory output increased solidly in August, though momentum slowed. US import prices increased more than expected, suggesting inflation pressures are building. A group of 50 Democratic and Republican members of Congress are due to unveil a $1.5 trillion bipartisan coronavirus relief legislation on Tuesday.

On warrant copper stocks in LME-registered warehouses rose by 9,400 tonnes to 45,950 tonnes, but remain far below a high of around 250,000 tonnes in May. A $16.25 premium for cash copper over three-month metal on the LME pointed to tight nearby supply.

China's aluminium production in August rose 2.3% from a month earlier, setting a record high for a second month. LME aluminium was down 0.4% at $1,793 a tonne, zinc rose 1% to $2,505, nickel fell 0.5% to $15,200, lead slipped 1% to $1,907.50 and tin was up 0.3% at $18,210.