Copper buoyed by stimulus hopes before ECB meet

SINGAPORE Thu Sep 6, 2012 5:06am EDT

SINGAPORE (Reuters) - Shanghai copper rose to its highest in more than three months on Thursday, while London prices held near a 1-1/2-month top on hopes the European Central Bank will unveil a new plan to combat surging borrowing costs in indebted euro zone states.

Leaks before the meeting gave investors confidence that the ECB will launch a new bond-buying plan, spurring appetite for riskier assets and sending London copper to $7,749 a tonne, a hair off 1-1/2-month high hit on Wednesday.

But analysts and traders were skeptical about whether any action by the ECB would have a long-lasting effect on prices of industrial metals, given their weak fundamentals.

"In the short term, decisive actions by the ECB will boost copper prices, but the medium-to-long term fundamentals will weigh on market sentiment," said Zhang Ao, an analyst at Minmetals Futures in the southern Chinese city of Shenzhen.

Zhang said the 250-day moving average near $7,900 is a key resistance level for London copper.

Three-month copper on the London Metal Exchange pared earlier losses to trade almost flat at $7,733.25 a tonne by 0701 GMT.

The most-traded December copper contract on the Shanghai Futures Exchange rose to as high as 56,460 yuan ($8,900) a tonne, its loftiest since May 14, before easing to close at 56,220 yuan.

Copper prices found support from reports that China, the top consumer of copper, has approved 25 rail projects that could be worth more than 700 billion yuan ($110.3 billion) in the latest measure to stimulate growth of the world's No.2 economy.

China's downturn probably worsened in August, according to a Reuters poll that foresaw factory output hitting a 39-month low and investment growth flattening, while quickening inflation was seen complicating Beijing's choices for boosting the economy.

According to technical charts, LME copper could rise to $7,824 a tonne during the day, Reuters market analyst Wang Tao said.

Though LME copper stocks have dropped for six sessions straight on September 5, hitting their lowest level since October 2008, traders said demand for the industrial metal on the physical market remained sluggish.

"There is very little demand when prices rise above 56,000 yuan," said a Shanghai-based trader. "The premium on imported copper is only about $50, reflecting low buying interest."

The ratio of cancelled warrant -- material earmarked for delivery -- to total LME stocks stood at a two-month low of 14.16 percent.

Investors will also closely watch the U.S. non-farm payrolls data due Friday, which is expected to shed light on whether the Federal Reserve will announce further stimulus measures at its policy meeting next week.

LME aluminium rose to a two-month high of $1,983.75.

LME lead hit $2,035.75, its highest since mid-May.

Base metals prices at 0701 GMT

Metal Last Change Pct Move YTD pct chg

LME Cu 7733.25 -6.75 -0.09 1.75

SHFE CU FUT DEC2 56220 490 +0.88 1.55

HG COPPER DEC2 352.25 -0.65 -0.18 2.52

LME Alum 1984.25 12.25 +0.62 -1.77

SHFE AL FUT DEC2 15640 140 +0.90 -1.29

LME Zinc 1893.00 2.00 +0.11 2.60

SHFE ZN FUT DEC2 14970 175 +1.18 1.18

LME Nickel 16123.00 23.00 +0.14 -13.83

LME Lead 2036.00 8.00 +0.39 0.05

SHFE PB FUT 15425.00 215.00 +1.41 0.92

LME Tin 19703.00 3.00 +0.02 2.62

LME/Shanghai arb^ 1098

Shanghai and COMEX contracts show most active months

^ LME 3-month copper in yuan, including 17 pct VAT, minus SHFE third month ($1 = 6.3492 Chinese yuan)

(Editing by Himani Sarkar)

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