U.S. copper ends off 4 percent on recession fears

NEW YORK, Jan 23 (Reuters) - U.S. copper futures closed 4 percent lower in volatile trading Wednesday amid fears of a recession and uncertainties over the red metal's near-term direction.

Benchmark copper for March delivery HGH8 on the New York Mercantile Exchange's COMEX division ended 12.45 cents lower at $3.0720 a lb in open outcry dealing.

"Once again, we had a day of indecision and volatility in the marketplace," said Ralph Preston, senior market analyst at Heritage West Financial in San Diego, California.

"We're actually just in a broad trading range between $3.30 and $2.85 on the March contract for the past three months now, and the market continues to be indecisive on the recession story."

March copper traded in a band of 13.5 cents on Wednesday, moving between a session high of $3.20 and low of $3.0650.

It hit a one-month low of $3.0120 on Tuesday as global equity and commodity markets came under heavy selling pressure on fears that the U.S. economy will post negative growth this year and dampen global growth along with it.

A surprise interest rate cut by the U.S. Federal Reserve on Tuesday, however, gave commodity markets a reprieve before they closed as the rate cut took the dollar down, boosting export prospects for commodities.

The Fed made its sharpest cut in more than 20 years to bring short-term interest rates to 3.5 percent from 4.25 percent. Speculation was rife that the central bank would again trim rates next week to 4 percent.

Traders said a weaker dollar against the yen [USD/] helped COMEX copper to recover during Wednesday's session. But the market fell by the close as recession worries outweighed other factors.

Still, next week's widely anticipated Fed rate cut could throw copper another lifeline, some analysts said.

"Copper is still suffering some liquidation, but it is improving," said Sterling Smith, vice president at Chicago commodity futures brokerage FuturesOne. "As long as it can hold $3 a lb, it shouldn't do too much damage."

Final volume in COMEX copper on Wednesday was estimated at 21,759 lots and options at 10 lots.

Open interest for the close of Jan. 22 was 86,382 lots, up 1,586 lots.

On the London Metal Exchange, copper for delivery in three-months MCU3 closed at $6,870 a tonne, down $150 from Tuesday.

In industry news, Freeport-McMoRan Copper & Gold Inc (FCX.N) said copper demand in the United States from nonresidential construction and other uses remained relatively strong.

Chinese demand for the metal has also grown strongly, Chief Executive Richard Adkerson told a conference call, adding that world inventories were down slightly from a year ago. (Reporting by Barani Krishnan; Editing by Walter Bagley)