Copper rose to a one-month high on Thursday, boosted by strength in the euro against the dollar, but trading was cautious ahead of a Spanish bond auction, which will test sentiment towards peripheral euro zone debt.
Benchmark copper on the London Metal Exchange (LME) rose to $7,878 tonne, by 11:28 SA time, up from Wednesday's close of $7,785 a tonne.
The metal used in power and construction earlier hit its highest level in a month at $7,885 a tonne.
“Previously there was a very bearish economic view being priced in so even an small improvement in that is having a very positive effect on prices especially given the market was generally positioned on the short side,” said Gayle Berry, analyst at Barclays Capital.
“But we're not out of the woods yet. Over the next couple of months the markets are going to remain very sensitive to the big picture and I don't think this is the beginning of a straight line higher.”
Gains were helped by a strengthening euro, which bounced off a 16-month low against the dollar. A weak dollar makes commodities priced in the US unit cheaper for holders of other currencies.
Market focus is on a 5 billion euro bond sale by Spain, which is expected to provide this year's first real test of demand for debt from the euro zone's bruised periphery.
Markets are also closely watching the outcome of the European Central Bank (ECB) policy meeting, a day after the head of sovereign ratings for Fitch warned the ECB should ramp up its buying of troubled euro zone debt to support Italy and prevent a “cataclysmic” collapse of the euro.
Last year, copper posted its first annual decline since 2008, losing a quarter of its value as the euro zone debt crisis and growth uncertainty soured the demand outlook for industrial metals.
Volume at the London Metal Exchange, the target of potential takeover bids, jumped 22 percent last year to a new record of 146.6 million lots, the exchange said on Thursday.
LUNAR NEW YEAR
Traders said an easing in Chinese inflation may help spur buying after the Lunar New Year break, as the government is now expected to focus less on putting a brake on prices and more on stimulus measures.
China's annual inflation fell to 4.1 percent December, the lowest level in 15 months. If easier monetary policy seeps into end-user markets, it may help support prices for copper as buyers will have more liquidity.
Copper stocks in LME-registered warehouses fell by 6,000 tonnes, according to data from the exchange, with 4,775 tonnes delivered out of warehouses in Busan, South Korea. Total cancelled warrants for copper stood at 13.74 percent.
“Inventory levels at the London Metal Exchange are falling and suggest robust consumption,” Credit Suisse said in a note.
“Moreover, cancelled warrants, i.e. inventories already earmarked for delivery are rising as well, which suggests that further outflows might be ahead. We take this as a positive sign.”
Three-month aluminium was at $2,189.50 from Wednesday's close of $2,165 a tonne, while tin rose to $20,601 from $20,475
Zinc rose to $1,948 from $1,936, while lead was at $2,013 from $1,990. Nickel rose to $19,524 from $19,450. - Reuters