Copper up on U.S. payrolls, weak dollar

LONDON Fri Aug 3, 2012 11:00am EDT

An employee checks a copper hose at the Sociedade Paulista de Tubos Flexiveis (SPTF) metallurgical company which manufactures flexible metal hoses, in Sao Paulo April 20, 2012. REUTERS/Nacho Doce

An employee checks a copper hose at the Sociedade Paulista de Tubos Flexiveis (SPTF) metallurgical company which manufactures flexible metal hoses, in Sao Paulo April 20, 2012.

Credit: Reuters/Nacho Doce

LONDON (Reuters) - Copper rose on Friday as the dollar fell against the euro after data showed U.S. employers hired the most workers in five months in July, but gains were tentative due to worries about a prolonged debt crisis in Europe and the outlook for base metal demand.

Three-month copper on the London Metal Exchange rose to $7,401.75 a metric ton (1.1023 tons) at 1031 EDT, up 1 percent from a close of $7,330 on Thursday, when it hit its lowest since June 22.

Data showed U.S. nonfarm payrolls rose by a better-than-expected 163,000 last month, but an increase in the jobless rate to 8.3 percent is likely to keep expectations of additional monetary stimulus from the Federal Reserve intact.

"Although the numbers are decent, they're not so amazing that the Fed are going to turn around and say the economy is fine. It will take a long and sustained period of improving data for the Fed to say that," said Guy Wolf, macro strategist at Marex Spectron.

"If we are moving into an environment where there is no more bad news, copper could get out of this range and move back towards $8,000. If people start selling U.S. treasures then that money will be seeking a home in places like base metals for example."

The jobs report put pressure on the dollar, which slipped against the euro and a basket of currencies. A weak dollar makes commodities priced in the U.S. unit cheaper for holders of other currencies. <FRX/>

Reflecting appetite for risk in the wider market, European equities rose while U.S. Treasuries weakened following the data. .EU<US/>

A separate piece of data showed the pace of growth in the vast U.S. services sector edged up in July as new orders gained traction, but employment fell to its lowest level in nearly a year.

But gains for base metals were capped by lingering concerns about the debt crisis in the euro zone.

Commodity prices fell on Thursday and copper hit six-week lows after ECB President Mario Draghi failed to offer immediate action to fix the euro zone economy which the market had expected to come via an announcement of large scale bond purchases.

"There were unwarranted expectations starting from last week of a decisive response by the monetary authorities, until yesterday when it became clear no fireworks were coming. At least not yet," RBS strategist Nikos Kavalis said.

ECB INACTION

The ECB's inaction added to gloom over dismal manufacturing sector reports from China, Europe and the United States this week, with only a small gleam of improvement seen in China's small- and medium-sized private sector companies.

China is the world's top consumer for copper, accounting for around 40 percent of global demand for the metal used in power and construction.

"The Chinese growth outlook appears riddled with risk, with soft investment growth likely to weigh on commodities demand over coming quarters. Taken together, metals demand is likely to remain restrained, which could keep prices at low levels in the near term, National Australia Bank said in a research note.

Reflecting a lack of conviction about copper's short-term price direction, the open interest in the LME copper contract hovered around near-five-year lows hit last week.

LME three-month aluminum rose to $1,860 from $1,844 at the close on Thursday.

ANZ sees potential for further losses, to below $1,600 per metric ton, which would add pressure on smelters suffering with thin or negative margins.

Bosnia's only alumina plant had to halt production on Wednesday after the country's main gas distributor cut supplies because it could not pay its bills. It resumed production on Thursday after agreeing to pay part of its debt.

Battery material lead was at $1,880.75 from $1,854 at the close on Thursday and zinc, used in galvanizing, rose to $1,840 from $1,812

Nickel was at $15,566 from $15,250 while tin rose to $17,800 from $17,430.

(Additional reporting by Melanie Burton in Singapore; Editing by Anthony Barker and Alison Birrane)

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