Copper rises as ECB comments spur "risk-on" rally

A shipment of copper is seen in the port of Valparaiso city, about 121 km (75 miles) northwest of Santiago, June 29, 2009.

NEW YORK/LONDON (Reuters) - London copper prices rose for a third straight day on Thursday after European Central Bank President Mario Draghi's pledge to protect the euro helped to spark a "risk-on" rally across most financial markets.

Copper pushed higher alongside rallies in both the euro and global equities after Draghi's vow to do whatever was necessary to preserve the euro zone. <MKTS/GLOB>

The rally helped copper prices bounce further away from Wednesday's plunge to a one-month low in relatively healthy volume on Thursday. But another round of mixed economic data from the United States and ongoing worries about the economic health of Europe led some investors to unwind their bullish bets after prices failed to hold ground above some shorter-term lines of defense, an analyst said.

"The durable goods orders didn't give market participants the conviction to challenge last week's high of $3.55 (per lb)," said Ralph Preston, futures analyst with HeritageWestFutures.com in San Diego, California.

"Price congestion under the 50-day moving average ($3.41/lb) is corresponding to the bottom half of last week's trading range and in the process is creating a technical formation known as a bear flag."

COMEX copper for September delivery rose 1.90 cents to settle at $3.3935 per lb, after dealing between $3.3535 and $3.4380.

COMEX volumes stood at a hefty 69,000 lots in late New York business, up more than half that of the 30-day norm, according to preliminary Reuters data.

At the London Metal Exchange (LME), three-month copper rose $24 to end at $7,470 a tonne, recovering from Wednesday's session trough at $7,344.25, which marked its cheapest price level since June 27.

"The latest comments from the ECB triggered the rally, that's today's story but in the background I do think the market is starting to price in increasing likelihood of quantitative easing, and that's visible in gold more than metals," said BNP Paribas analyst Stephen Briggs.

Data on Thursday showed new orders for long-lasting U.S. manufactured goods rose in June although a gauge of planned business spending plans dropped, pointing to a slowdown in factory activity.

An unexpected drop in U.S. pending home sales added to the pessimistic economic mood, outweighing moderately upbeat weekly employment data.

The disappointing U.S. data as well as softer corporate earnings results has led some investors to the view that the Federal Reserve will have to institute quantitative easing sooner rather than later.

"The copper market, the gold market are all hungry for some sort of central bank movement ... They have been fishing for this for a while now, and the hook keeps coming up dry," said Sterling Smith, vice-president of commodity research at Citibank's Institutional Client Group in Chicago.

Copper, used mainly in construction and power, has shed around 15 percent from the year's peak hit in February in the harsh economic climate.

On the downside for copper, however, are persistent worries about the debt crisis in Europe, which now is also posing a bigger risk to China, the world's largest consumer of copper. The International Monetary Fund said it expects economic growth to moderate to 8 percent.

"That's all conspiring to see some risk taken off table. All the data points to economies in recession or continuing to slow, which is not good for the base metals complex," said Societe Generale analyst Robin Bhar. "The general trend is still downwards."

CHINA

In tin, a sharp drop in the price has spurred a pickup in China purchases, RBC Capital said in a note.

Three-month tin, one of the LME's smallest and most illiquid contracts, hit a 10-month low of $17,125 a tonne on Wednesday. It closed up 2.33 percent at $17,750 on Thursday. The metal is still down around 6 percent this week.

Tin and benchmark nickel "are both flirting with new yearly lows and show few signs of reversing," RBC said. "The shorts are piling in but have not reached the danger zone yet as indicators are not decidedly oversold."

Nickel ended down $10 at $15,890. It hit a three year low earlier this week of $15,450.

(Additional reporting by Maytaal Angel in London and Melanie Burton in Singapore;editing by James Jukwey, Keiron Henderson and Sofina Mirza-Reid)