Copper hit a three-week high on Tuesday, lifted by fund allocations at the start of the year and by an expansion in China's manufacturing activity, which boosted hopes that demand for industrial metals will increase.
Gains were kept in check, however, as Europe's debt crisis remains unresolved, clouding the outlook for the global economy and for metals demand this year.
Three-month copper on the London Metal Exchange rose 0.78 percent to $7,659.25 a tonne by 12:48 SA time from $7,600, having earlier hit its highest since December 12 at $7,703. Volumes were extremely low at around 3,400 lots, compared with a usual 6,000 lots by mid-morning.
The metal, used in power and construction, posted its first annual decline in three years in 2011 when it lost a fifth of its value on fears related to the euro zone debt crisis and the global economic slowdown.
“Funds are now investing again, taking a bit more risk after a poor year, and this is supporting the base metals. (China data) is of course also a supporting factor,” said Quantitative Commodity Research analyst Peter Fertig.
He added, however, that the outlook is shaky. “It will depend on whether the debt crisis calms down or whether investors remains jittery, (which) would be negative for metals.”
China's official purchasing managers' index (PMI) rose to 50.3 in December from 49 in November, indicating a slight expansion in business activity in the factory sector, but downward risks persist.
In the wider markets, European shares, seen by some as a proxy for growth, rose for a fourth consecutive session while the euro was up versus the dollar, making dollar-priced commodities cheaper for European investors.
“China's PMI number looks positive, better than most people had expected earlier on,” said Huang Yiping, chief economist for emerging Asia at Barclays Capital in Hong Kong.
“But caution remains in the market. The euro zone economy is declining, it's in negative growth.”
Also aiding copper, workers at Freeport McMoran Copper & Gold Inc's Indonesia unit delayed their return to work at the world's second-largest copper mine after a three-month strike over a labour dispute.
LME copper faces a resistance at $7,689 a tonne and only a rise above this could open the way to $7,887, according to Reuters technical analyst Wang Tao.
With trading conditions quiet, investor attention will turn to US ISM manufacturing PMI data for December, due later in the session.
On Monday, a survey showed euro zone manufacturing activity declined for a fifth consecutive month in December, although at a slightly slower rate than November's 28-month record low, suggesting the decline would continue in the early months of 2012.
In other metals traded, soldering metal tin rose 0.78 percent to $19,350 a tonne from $19,200, having earlier hit a near 3-week high at $19,475, while zinc, used in galvanising, rose 0.05 percent to $1,846 from $1,845.
Battery material lead fell 0.60 percent to $2,021.75 from $2,034, having earlier hit a near three week high at $2,055.75, aluminium was
flat at $2,020 while stainless-steel ingredient nickel fell 1.1 percent to $18,444 from $18,650.
In industry news, Rio Tinto Alcan will shut down about a third of the production at its 438,000-tonne Alma aluminum smelter in the Canadian province of Quebec after locking out hundreds of unionised workers in a contract dispute. - Reuters