METALS-Copper hits 3-month low, recovery doubts dominate

Fri Feb 5, 2010 2:45pm EST

* U.S. jobs data mixed

* Euro zone sovereign default worries escalate

* All metals hit multi-month lows

(Recasts with New York closing copper price, adds NEW YORK dateline/byline and analyst comments)

By Chris Kelly and Pratima Desai

NEW YORK/LONDON, Feb 5 (Reuters) - Copper fell to its lowest level in more than three months on Friday, as a stronger dollar and worries over the health of the global economy outweighed mixed U.S. jobs data.

Benchmark copper for March delivery HGH0 on the New York Mercantile Exchange's COMEX division slipped 2.15 cents to settle at $2.8575 per lb, after dealing between $2.8905 and $2.8110, which marked is lowest level since Oct. 15.

On the London Metal Exchange (LME), three month copper MCU3 ended at $6,265 a tonne, from $6,390 at the close on Thursday. Earlier, the metal used in power and construction tumbled to $6,225 a tonne, another low dating back to the middle of October.

U.S. employers unexpectedly cut 20,000 jobs in January, but the unemployment rate surprisingly fell to a five-month low of 9.7 percent, Labor Department data showed. [ID:nN04115255]

"An unemployment rate below 10 percent is not a bad sign - it was generally mixed jobless (data), but overall, in the wider scheme of things it did not really matter," said Michael Widmer, analyst at BofA Merrill Lynch.

"Sovereign debt remains a critical issue right now, it's indirectly related to metals but it's overall a concern about the strength of economic recovery."

The dollar rose against the euro to its highest level since May as the cost of insuring the debt of Greece, Portugal and Spain against default hit record highs on worries over their fiscal positions. [USD/]

A stronger dollar makes dollar-priced metals more expensive for non-U.S. investors.

Selling of commodities and equities has accelerated since European Central Bank President Jean-Claude Trichet made comments on Thursday that reinforced worries over sovereign default in the euro zone. [ID:nECBNEWS]

"Sentiment in the market has really turned," said Sterling Smith, an analyst for Country Hedging Inc in St. Paul, Minnesota.

"We're looking for consolidation at best over the next week. The bottom line is there is more reason for the bulls to keep their hands in their pockets than there is for them to come in here and really look to be buying this," he said.

ALERT

Also weighing on metals are expectations that central banks and governments around the world will drain liquidity from markets, which have been fueled by some policy tightening in China and in Britain. [ID:nLAC005629]

"Concerns over Chinese policy tightening, the potential for a European sovereign default and uncertainty over U.S. policy have put downward pressure on commodity prices even as near-term fundamentals improve," said Goldman Sachs in a note.

"Although prices will likely remain volatile, we believe fundamentals will dominate, with a strong risk-reward trade-off for fresh longs."

Copper stocks in LME warehouses are more than double the levels in the middle of July last year, but over the last couple of weeks they have hovered around 540,000 tonnes.

Stocks of aluminum, used in transport and packaging, fell 7,900 tonnes to 4.58 million tonnes.

Aluminum MAL3 ended at $1,980 a tonne from $2,045 a tonne on Thursday, having earlier hit a two-month low of $1,967.50, while zinc MZN3 finished at $1,940 from $2,021, having earlier hit $1,935, its lowest since early October.

Lead MPB3 ended at $1,940 from $1,964.50, having dropped to a five-month trough of $1,920.50, while nickel MNI3 ended at $17,005 from $17,725, having dropped to $17,020, a level last seen on Dec. 18.

Tin MSN3 ended at $15,350 from $16,150. In after-hours business, it fell further to $15,050, matching a low dating back to early December.

Metal Prices at 1923 GMT Metal Last Change Pct Move End 2009 Ytd Pct

move COMEX Cu 285.25 -2.65 -0.92 334.65 -14.76 LME Alum 1980.00 -65.00 -3.18 2230.00 -11.21 LME Cu 6285.00 -105.00 -1.64 7375.00 -14.78 LME Lead 1967.00 2.50 +0.13 2432.00 -19.12 LME Nickel 17100.00 -625.00 -3.53 18525.00 -7.69 LME Tin 15050.00 -1550.00 -9.34 16950.00 -11.21 LME Zinc 1955.00 -66.00 -3.27 2560.00 -23.63 SHFE Alu 16115.00 -235.00 -1.44 17160.00 -6.09 SHFE Cu* 51950.00 -2070.00 -3.83 59900.00 -13.27 SHFE Zin 16980.00 -520.00 -2.97 21195.00 -19.89 ** 1st contract month for COMEX copper * 3rd contract month for SHFE AL, CU and ZN SHFE ZN began trading on 26/3/07 (Additional reporting by Maytaal Angel in London; Editing by Keiron Henderson/Marguerita Choy)