US copper futures end higher on dollar weakness

NEW YORK, March 25 (Reuters) - U.S. copper futures closed higher on Tuesday, extending a bounce from last week's sharp decline, with renewed losses in the dollar this week creating a favorable arbitrage for investors, analysts said.

Copper for May delivery HGK8 settled up 5.60 cents at $3.6785 a lb on the New York Mercantile Exchange's COMEX division, after dealing in a session range between $3.5985 and $3.71.

Last week, copper prices were caught up in a massive wave of speculative liquidation throughout most commodity markets, sending prices of the red metal down to a six-week low at $3.4610.

Eric Wittenauer, futures analyst with A.G. Edwards in St. Louis, Missouri, said the market's ability to rebound and close significantly away from that low on Friday was "conducive to the rally we have seen early this week."

By 1 p.m. EDT (1700 GMT), futures volumes were estimated at 15,389 lots. On Monday, final volumes totaled 10,032 lots.

Open interest in the market fell by 824 lots to 98,370 contracts open as of March 24.

With stronger-looking technicals sparking the turnaround in the metal from last week, it was the dollar's recent struggles against the euro this week that propelled the reversal, analysts said.

"It has really been a dollar play over the past couple of days," said Rob Kurzatkowski, futures analyst with OptionsXpress, Inc. in Chicago.

The dollar was in a broad retreat on Tuesday, posting its steepest loss against the euro in two weeks, hurt by concerns about the strength of the U.S. economy and the global financial sector.

In midday New York trading, the euro EUR= was up 1 percent on the day at $1.5586, posting its biggest one-day rise since March 12. The single currency is down roughly 1.9 percent from last week's record high at $1.5904, but still up 6.8 percent since the beginning of the year.

A weaker U.S. currency tends to make dollar-priced metals more attractive for holder of foreign currencies.

Soft economic data on Tuesday failed to unnerve the copper market's push higher.

Prices of existing U.S. single-family homes slumped about 11 percent in January from the same month in 2007, according to two closely watched Standard & Poor's/Case-Shiller gauges.

A report by the Conference Board showed consumer expectations for the future were at a 34-year low in March and anxieties over job prospects and inflation at their highest since the aftermath of Hurricane Katrina in late 2005.

The Board said its index of consumer sentiment fell in March to 64.5 -- the lowest since March 2003 -- from an upwardly revised 76.4 in February.

"These are dramatic declines with all the bad news hitting consumers," said Nigel Gault, chief U.S. economist at research consultancy Global Insight in Waltham, Massachusetts. "It's hard to say anything positive for the consumers."