LONDON Copper rose on Wednesday following positive U.S. housing data, but the gains were muted after a gloomy outlook from the U.S. Federal Reserve and due to continued concerns about Europe's debt crisis and global metals demand.
Three-month copper on the London Metal Exchange climbed 0.55 percent to close at $7,637 a tonne in low volumes. Copper, extensively used in construction, perked up after data showed U.S. housing starts rose 6.9 percent in June.
Groundbreaking for new homes increased at the fastest pace in over three years, lending a helping hand to a U.S. economy that has shown signs of cooling.
The gains were kept in check, however, by falls in the euro versus the dollar following a media report that quoted German Chancellor Angela Merkel as saying she could not be sure the European project would work.
A strong dollar makes commodities priced in the U.S. unit more expensive for holders of other currencies.
Trading volumes were thinned by Europe's summer season, during which much of the industry shuts down for a break. Highlighting the lack of conviction in the market, open interest in copper is at its lowest since July 2009.
Copper prices are trading 0.6 percent lower so far this month, having shed 9 percent in the second quarter as it hit a 2012 low of $7,219.50 a tonne in June.
Lingering worries about a slowdown in the global economy and Europe's persistent debt crisis also kept investors cautious. In addition, China -- the world's biggest copper consumer -- faces its slowest growth in three years, raising concerns about the outlook for demand.
"Everyone is concerned about what is going on in Europe and also about the U.S. where economic numbers have been disappointing," said Nic Brown, head of commodities research at Natixis.
"And although we continue to like the look of the second half of the year in China, there is no denying that second quarter growth there was horrid."
Many analysts have virtually written off the European summer in terms of a rebound in demand, but are still expecting improvement later in the second half.
A 20 percent fall in exchange inventories in the second quarter was a good sign, said HSBC analyst Andrew Keen in a note. "This is the hardest indicator that there has neither been a significant negative shock to demand nor a pronounced destocking cycle."
In his testimony on Tuesday, Chairman Ben Bernanke said the Federal Reserve stands ready to offer more stimulus as needed, leaving the door open for further monetary easing, but stopped short of signaling action in the near term.
On the European front, Greek coalition leaders agreed to meet next week to hammer out almost 12 billion euros worth of austerity cuts demanded by the near-bankrupt country's lenders after a deal proved elusive at an initial round of talks on Wednesday.
In China's physical markets, traders are handling lower base metals volumes than at the same time last year, one Shanghai-based physical trader noted.
"Consumer demand for base metals has been hit by a sluggish business climate in China, while Beijing's recent injections of liquidity into the system have also reduced the need for people to buy base metals as collateral for financing," he said.
Highlighting mounting concerns about China's sagging economy, Premier Wen Jiabao said the country's job market could turn for the worse and the government needed to step up efforts to create more jobs.
In industry news, mining giant BHP Billiton (BHP.AX)(BLT.L) reported annual copper output growth of 15 percent in the June quarter.
In other metals, aluminum ended 0.3 percent higher at $1,909 a tonne, battery material lead rose 0.9 percent to $1,910 a tonne, and zinc, used in galvanizing, rose 0.2 percent to $1,869.
Stainless-steel ingredient nickel closed unchanged at $16,100 a tonne and soldering metal tin finished down 0.5 percent at $18,800.
(Additional reporting by Carrie Ho in Shanghai; Editing by Anthony Barker)