Copper softens as growth worries offset stimulus hopes

LONDON (Reuters) - Copper edged down on Wednesday, in a volatile session, as uncertainty about the outlook for global growth reinforced concerns about demand for metals, but losses were limited by prospects for more stimulus measures from the Federal Reserve, reinforced by flat U.S. inflation data.

Three-month copper on the London Metal Exchange (LME) closed at $7,385.50 a tonne, 0.4 percent down from a close of $7,416 a tonne on Tuesday.

Trading volumes were light due to the Northern Hemisphere summer holiday, with markets in a number of European countries shut for the Assumption Day holiday.

"Sentiment is still pretty negative towards the growth outlook and markets now are waiting to see whether we do get some sort of policy response and if so, what form that takes and what the implications could be for metals demand," said Gayle Berry, analyst at Barclays Capital.

Some support was offered by data showing July consumer prices were flat in the United States for a second straight month and the year-on-year increase was the smallest since November 2010, giving the Federal Reserve room for further monetary stimulus to tackle stubbornly high unemployment.

"The market is looking for central bank stimulus so what matters is whether the inflation data or any data makes it more or less likely," said Guy Wolf, macro strategist at Marex.

There were also more hopes of stimulus from China after a think-tank official said on Wednesday the country must crank up pro-growth policies over the next three months or risk missing its annual growth target.

Beijing must boost investment growth, preferably by raising spending on the country's high-speed rail network, to stop a slide in economic growth that is running into a seventh straight quarter, said Zheng Xinli, vice chairman of the China Centre for International Economic Exchanges.

China is the world's top copper consumer, accounting for more than 40 percent of refined demand. Moves to boost the economy, especially through investments in commodities-intensive infrastructure, is likely to lift copper's demand prospects.

"There is an expectation in the market that we will see a policy response (from China) and that is helping to support prices. It has not been fully priced in, but the expectation of a policy response means we haven't seen more aggressive selling in base metals," Berry said.

Copper is down about 2 percent so far this month, having fallen almost 9 percent in the second quarter of the year as uncertainty about the outlook for demand weighed on prices.

EURO ZONE FEARS

Worries about the euro zone economy are likely to keep metals prices soft. Growth shrank in the second quarter, having been flat in the first, despite continued German growth.

"The second half of the year is unlikely to show much, if any, improvement (in euro zone economic growth) on the first. Recent PMI (Purchasing Managers' Index) figures continue to highlight the contraction in aggregate activity, and German officials have warned of a further slowing in growth," ANZ analysts said.

In other metals, zinc closed at $1,802 a tonne, down from Tuesday's close of $1,819 a tonne. LME data showed an inflow of 22,700 tonnes of the metal into exchange-monitored warehouses in Johor, Malaysia. Overall stock levels rose by 18,725 tonnes.

Aluminium closed at $1,839 from Tuesday's close of $1,856 a tonne and lead closed at $1,825 from $1,855.

Nickel finished at $15,300 from $15,470. Tin, untraded at the close, was last bid at $18,000 from $18,275.

Tin looks set to continue to outperform other base metals in coming months as tightening supplies help insulate the soldering material from the impact of a slowing Chinese economy, industry sources said.

Metal Prices at 1612 GMT Comex copper in cents/lb, LME prices in $/T and SHFE prices in yuan/T

Metal Last Change Pct Move End 2011 Ytd Pct

move

COMEX Cu 334.85 -1.05 -0.31 344.75 -2.87

LME Alum 1837.00 -19.00 -1.02 2020.00 -9.06

LME Cu 7399.50 -16.50 -0.22 7600.00 -2.64

LME Lead 1826.25 -28.75 -1.55 2034.00 -10.21

LME Nickel 15312.00 -158.00 -1.02 18650.00 -17.90

LME Tin 18155.00 -120.00 -0.66 19200.00 -5.44

LME Zinc 1801.00 -18.00 -0.99 1845.00 -2.38

SHFE Alu 15345.00 -15.00 -0.10 15845.00 -3.16

SHFE Cu* 54690.00 70.00 +0.13 55360.00 -1.21

SHFE Zin 14600.00 -35.00 -0.24 14795.00 -1.32 ** Benchmark month for COMEX copper * 3rd contract month for SHFE AL, CU and ZN SHFE ZN began trading on 26/3/07

(Editing by Anthony Barker and Nina Chestney)