SINGAPORE (Reuters) - Shanghai copper fell more than 3 percent on Monday while London metal dropped 1.5 percent, extending recent losses as worries about the firm dollar and risk aversion got the better of positive U.S. data.
The U.S. economy grew at a faster-than-expected 5.7 percent in the fourth quarter, the quickest pace in more than six years, the Commerce Department said.
That, and data showing surprisingly strong consumer sentiment and business activity, helped boost the dollar which rallied versus the euro.
“It is interesting to note the downward run coincided with strong U.S. data. The market is in a mode of risk reduction, ignoring the data and focusing on concerns about the debt problems in parts of Europe and further measures to control bank credit in China,” Barclays Capital analyst Yingxi Yu said.
“The market is still nervous toward further measures to rein in liquidity in China, but those policies are directed at curbing over expansion in credit, while recent U.S. macro data builds a stronger base for a recovery in demand.”
Benchmark third-month Shanghai copper fell 1,760 yuan to 53,670 yuan by midday. Earlier, prices dipped to 53,300, their weakest in 2- months.
Three-month copper on the London Metal Exchange fell 1.5 percent to $6,642.25 by 0333 GMT, trading a hefty 2,603 lots.
“The sharp sell-off in metals and their response to strong U.S. data suggests that some of the gains were predicated on easy money rather than real demand,” a dealer in Hong Kong said.
“But the washout seems to be pushing metals back toward where you can justify them from a fundamental standpoint. We probably have a little further to go on the downside but it’s healthy and long been needed.”
LME copper earlier hit $6,600, its lowest since November 16, 2009, and may test support toward $6,568, the 61.8 percent retracement from the rally between October and mid-January.
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Copper fell 8.5 percent last month, chalking up its longest string of daily losses since December, crashing through support from the 100-day moving average at $6,744, and traders said if it breaks the 61.8 percent Fibonacci level it would probably come to rest toward the 200-day moving average at $6,000.
“At some stage this will stabilize. There have been huge amounts of material liquidated and based on today’s action there is still more to go,” a trader in Shanghai said.
He noted support around the $6,600 had held, but continued selling by long macro-economic funds and fresh bets on falling commodities and a rising dollar could pressure markets down toward $6,000.
“What spooked the Western world was China’s reserve requirement increase. That seems to have been interpreted as an end to growth — that’s a crazy assessment,” he said.
Aluminum was flat at $2,080 having lost 6.8 percent in January, its biggest loss in 12 months.
But other metals extended recent declines. Zinc added to its 17.5 percent monthly decline and lead fell a further 2.5 percent after sliding 16.3 percent. Both metals saw their biggest falls since October 2008 last month.
Last month’s strongest performers — nickel, which was flat on the month, and tin, which scored a 1.5 percent rise — fell by 0.4 percent and 4 percent, respectively.
Base metals prices at 0333 GMT
Metal Last Change Pct Move End 2009 YTD pct chg
LME Cu 6642.25 -103.25 -1.53 7375.00
SHFE Cu* 53670.00 -1760.00 -3.18 59900.00
LME Alum 2089.00 9.00 +0.43 2230.00
SHFE Alum* 16040.00 0.00 +0.00 17160.00
COMEX Cu** 301.15 -3.45 -1.13 332.75
LME Zinc 2085.00 -25.00 -1.18 2560.00
SHFE Zinc 17165.00 -230.00 -1.32 21195.00
LME Nickel 18425.00 -75.00 -0.41 18525.00
LME Lead 1985.00 -35.00 -1.73 2432.00
LME Tin 16500.00 -700.00 -4.07 16950.00
LME/Shanghai arb^ -614
Dollar/yuan 6.8271 \ 6.8291
** 1st contract month for COMEX copper
* 3rd contact month for SHFE aluminum, copper and zinc
^ LME 3-m copper in yuan, including 17 pct VAT, minus SHFE third month
Editing by Himani Sarkar