* HSBC China flash PMI falls to seven-month low of 49.6
* Worries of early end to bond buying also hurt sentiment
By Eric Onstad and Rosalba O'Brien
LONDON, May 23 Copper reversed the week's gains, sliding as much
as 3 percent on Thursday after a survey showed factory activity in top metals
consumer China shrank for the first time in seven months.
Benchmark three-month copper on the London Metal Exchange slid 3.2
percent to a session low of $7,233 per tonne. It failed to trade in official
rings but was bid at $7,319.5 per tonne.
Other industrial metals also fell, with aluminium down 1.4 percent
to $1,857 per tonne and nickel sliding 2.0 percent to $14,870 after a
survey of Chinese purchasing managers (PMI) showed factory activity contracted
for the first time in seven months in May.
China is the world's biggest consumer of industrial metals, taking 40
percent of the global supply of refined copper.
"The data have maybe given people a bit of a reality check, but it shouldn't
have come as a surprise. All the indications from the Chinese economy at large
have been suggesting a very muted recovery," said analyst Robin Bhar at Societe
Generale in London.
Also weighing on the market were hints from the U.S. Federal Reserve chief
on Wednesday that the bank would end its bond-buying program earlier than
expected, eroding liquidity and investment capital available for metals.
"For so long people have taken for granted that money will be free. But as
soon as it's not free, then that's when we are going to see big ruction in
metals markets," said Matt Fusarelli, analyst at consultancy AME Group in
The Chinese data and U.S. comments also hit oil and world stock markets and
overshadowed a PMI survey in the euro zone, which showed tentative signs the
downturn was easing slightly.
The uncertainty also failed to be stemmed by U.S. data on Thursday, showing
jobless claims dropping more than expected last week.
After hitting a six-week high of $7,533.75 a tonne on Wednesday, copper has
given up the week's gains.
The weaker market was also reflected in a move by investment bank Goldman
Sachs, which gave up on a previous bullish recommendation and advised clients to
Goldman had told clients to go long in copper on March 1, forecasting a
bounce back to around $8,000 a tonne, but instead the market tumbled, so the
bank said the trade should be closed with losses of $236 a tonne or 3.1 percent.
Copper losses were capped by a continued shutdown at one of the world's
biggest mines in Indonesia, which suspended operations on May 15 after a tunnel
collapse killed 28 workers.
A trade union official said on Thursday all investigations into the incident
at Freeport McMoRan Copper & Gold Inc 's Grasberg mine must be completed
before workers return.
Soc Gen's Bhar said the LME copper market was unlikely to revisit 18-month
lows hit early in the month of just below $6,800 a tonne due to support from
restricted copper supply, including the length of the mine closure.
"It may be that the supply side comes to the rescue of a fairly weak demand
uptick so far in copper," Bhar added.
India's top copper smelter, run by Sterlite Industries, has also
been shut since the end of March, with a court hearing into complaints of
polluting emissions due to resume on Monday.
A landslide at Rio Tinto's mine in Utah has also cut production.
In the official ring, zinc traded at $1,855, down 1.4 percent, lead
was down 1.2 percent at $2,032, while tin was down 2 percent to