METALS-Copper hits loftiest close in 3-wks as stocks rally

Fri Aug 27, 2010 4:55pm EDT

* Bernanke highlights slowing growth, Fed will take action

* U.S. stocks rise on Bernanke remarks, lifting copper

* U.S. Q2 growth revised down, up from forecast (Recasts, updates prices, market activity to New York close, adds second byline, dateline, previously LONDON)

By Selam Gebrekidan and Pratima Desai

NEW YORK/LONDON, Aug 27 (Reuters) - U.S. copper on Friday rose to its highest close since Aug. 4, supported by a rally on Wall Street after a speech by the Federal Reserve chief boosted optimism among investors.

Benchmark copper CMCU3 on the London Metal Exchange hit $7,472.25 a tonne, its highest since Aug. 19. The metal used in power and construction ended at $7,459 a tonne from $7,304.50 on Thursday.

In New York, copper for September delivery HGU0 rose 5.85 cents, or 1.77 percent, to close at $3.3630 per lb on the COMEX Exchange.

Copper prices were pulled higher by a rally in the U.S. stock market following a speech by Fed Chairman Ben Bernanke.

Bernanke said the economic recovery had softened more than expected, but noted the benefits of the U.S. central bank buying more longer-term securities, if needed, would outweigh the disadvantages. [ID:nN27259859]

"The market is very bullish now because the stock market is strong. I am surprised that the market can absorb all the bad news of the week then still move higher," said Scott Meyers, senior trading analyst with Pioneer Futures in New York.

Ahead of Bernanke's comments, the U.S. government revised its estimate of second-quarter gross domestic product growth downward to 1.6 percent from a previous estimate of 2.4 percent. [ID:nN26193565] But the downward revision was not as sharp as expected. Analysts had feared the revision could pull the figure down to 1.4 percent.

St. Louis Federal Reserve President James Bullard assured markets that the Fed is not out of options to boost growth. He added that any future quantitative easing measures should be "disciplined." [ID:nN27261214]

"There's a concern that (the U.S.) is slowing, but the Asian economies are balancing the slowing. In Europe, you're getting a strong core picture. The U.S. is only one aspect," said Alex Heath, head of base metals at RBC Capital Markets.

Supporting copper, stocks in LME warehouses, at 400,100 tonnes, are down more than 25 percent since mid-February and at the lowest level since November. <0#LME-STOCKS>

"LME copper stockpiles have virtually plunged non-stop since their 6.5-year high in mid February," Commerzbank said in a note. "The reduction of stocks is due to stronger demand, which could drive the global copper market into a deficit." [MET/POLL] (Graphic: link.reuters.com/deg67n )

Aluminium stocks in LME warehouses have also been falling. They now stand at above 4.44 million tonnes compared with a record above 4.64 million tonnes in January.

However, about 70 percent of LME aluminium stocks are said to be tied up in financing deals, which earn banks higher returns than they would get in money markets and release cash for producers. [ID:nLDE65726D]

That is said to be the reason for the large holdings of LME aluminium stock warrants and cash contracts by two entities. This combined with large short positions is why there is a backwardation or premium for nearby material. <LME/WC> <LME/FB2>

The premium for material to be delivered on Monday and bought back on Tuesday -- known as tom/next and often used to lend material to short positions -- is now around $1 a tonne.

Aluminium CMAL3, used in transport and packaging, ended at $2,058 a tonne from $2,022 on Thursday.

Also on the radar are large holdings of stock warrants and cash contracts for aluminium alloy, North American aluminium alloy, copper, nickel, lead and tin. <LME/WC>

Tin CMSN3 hit a two-year high of $21,750 a tonne as the market fretted about supplies from top exporter Indonesia. It ended at $21,640 a tonne from $20,350 on Thursday.

Stainless steel ingredient nickel CMNI3 ended at $21,050 a tonne from $20,450, and battery material lead CMPB3 at $2,090 a tonne from $2,025.5, having earlier hit a one-week high of $2,090.

Zinc CMZN3 was last bid at $2,092 from $2,050, having hit a one-week high of $2,102.50.

Metal Prices at 1939 GMT Metal Last Change Pct Move End 2009 Ytd Pct

move COMEX Cu 337.65 7.20 +2.18 334.65 0.90 LME Alum 2055.00 52.00 +2.60 2230.00 -7.85 LME Cu 7440.00 135.50 +1.86 7375.00 0.88 LME Lead 2075.00 49.50 +2.44 2432.00 -14.68 LME Nickel 20985.00 535.00 +2.62 18525.00 13.28 LME Tin 21475.00 1125.00 +5.53 16950.00 26.70 LME Zinc 2080.00 30.00 +1.46 2560.00 -18.75 SHFE Alu 15325.00 0.00 +0.00 17160.00 -10.69 SHFE Cu* 57850.00 500.00 +0.87 59900.00 -3.42 SHFE Zin 17055.00 140.00 +0.83 21195.00 -19.53 ** Benchmark 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 David Gregorio)

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