METALS-Copper sinks on dollar, China tightening fears

Fri Feb 12, 2010 3:15pm EST

* China move hits metals market sentiment

* Analysts still bullish about copper

* US economic data offers little support

(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 12 (Reuters) - Copper prices fell Friday under the weight of a stronger dollar, mixed economic data in the United States and further monetary tightening moves in China, which triggered renewed worries about near-term demand prospects in the world's top metals consumer.

Benchmark copper for March delivery HGH0 on the New York Mercantile Exchange's COMEX division shed 5.10 cents, or 1.6 percent, to finish at $3.0825 per lb, after dealing in a session range between $3.0340 and $3.14.

On the London Metal Exchange (LME), copper for three-month delivery MCU3 ended at $6,810 a tonne, down $130 from Thursday, when the metal used in power and construction hit a two-week high of $6,970 a tonne.

In a bid to cool the country's rapidly growing economy and combat inflation, China's central bank surprised markets by raising banks' reserve requirement 50 basis points effective on Feb. 25, the second such increase this year. [ID:nTOE61B069]

The news sparked losses across the broader metals complex, raising concerns about China's ability to continue to lead the global economic recovery.

"I think there is going to be, and continue to be, some questions over the durability of some of the Chinese expansion growth that we have seen," said Steve Platt, futures analyst with Archer Financial Services in Chicago.

"The dollar and a lot of markets were responsive to the news," he said.

The dollar rose against the euro after the China news and after a pledge by the European Union to help Greece tackle its fiscal problems did little to quell uncertainty over the country's ballooning sovereign debt. [USD/]

A stronger U.S. currency makes dollar-denominated commodities more expensive for holders of other currencies.

Elsewhere, mixed economic data from the United States offered little support to copper. Sales at U.S. retailers rose more than expected in January, but consumer sentiment slipped in early February, data showed. [ID:nN12156724]

On the supply side, LME copper stocks at one-year highs above 547,000 tonnes weighed on prices, but against that, canceled warrants -- material earmarked for delivery -- doubled to above 12,000 tonnes on Thursday from Wednesday. <0#LME-STOCKS>

"(Canceled warrants) mostly in Korea are heading for China," a trader said. "It may be slow until after the Chinese holiday, but keep an eye on that number."

FAVORITE METAL

Longer term, analysts expect to see higher copper prices because of strong growth and demand from China.

"Copper is still our favorite base metal ... We're still bullish. We believe in Chinese growth," said Colin Hamilton, analyst at Macquarie.

"End user sectors in China will more than compensate for any loss from the property sector, which is a slight worry."

Still, analysts say monetary policy in China remains loose and worries about significant tightening are premature, given expectations of 10 percent gross domestic product growth this year. [ID:nTOE616010]

Aluminum MAL3, used in transport and packaging, hit $2,080 a tonne, its highest since Feb. 4. It ended at $2,055 a tonne from $2,065 on Thursday.

Zinc MZN3 finished at $2,170 from $2,180, lead MPB3 at $2,133 from $2,125, tin MSN3 was last bid at $16,200 from $16,175, and nickel MNI3 ended at $18,550 from $18,450, having earlier hit $18,890, its highest since late January.

Metal Prices at 1949 GMT Metal Last Change Pct Move End 2009 Ytd Pct

move COMEX Cu 307.90 -5.45 -1.74 334.65 -7.99 LME Alum 2056.00 -9.00 -0.44 2230.00 -7.80 LME Cu 6790.00 -150.00 -2.16 7375.00 -7.93 LME Lead 2125.00 0.00 +0.00 2432.00 -12.62 LME Nickel 18550.00 100.00 +0.54 18525.00 0.13 LME Tin 16205.00 30.00 +0.19 16950.00 -4.40 LME Zinc 2165.00 -15.00 -0.69 2560.00 -15.43 SHFE Alu 16825.00 185.00 +1.11 17160.00 -1.95 SHFE Cu* 56410.00 1020.00 +1.84 59900.00 -5.83 SHFE Zin 18345.00 270.00 +1.49 21195.00 -13.45 * 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 Lisa Shumaker)

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