Copper rose on Friday, on track for a more than 7 percent rise this quarter, as the dollar softened and after debt-laden Spain unveiled a budget that reassured investors that a resolution to the euro zone crisis had cleared a hurdle.
Spain's detailed timetable for economic reforms and spending cuts drove both commodities and equities higher.
And following new monetary stimulus unveiled by the United States and Japan this month, markets expect China to cut interest rates to spur growth, as weakening demand in China has damaged global economies and weighed on investor sentiment.
“The combination of Chinese fiscal stimulus, Federal Reserve unlimited quantitative easing and possible resolution in Europe is a very positive mix for base metals,” Guy Wolf, macro strategist at Marex Spectron, said.
“We expect significant fund flow into commodities over the quarter end and a positive Q4 performance.”
Three-month copper on the London Metal Exchange rose 0.9 percent to $8,242 a tonne by 12:44 SA time, extending gains from the previous session when it closed at $8,175. Prices hit their lowest in two weeks at $8,082 a tonne on Wednesday.
While copper was on track to post a 7.3 percent rise this quarter, after falling 9 percent in the previous one, it is still down 0.4 percent this week.
The euro rose against the dollar, recovering from a two-week low, after Spain's budget. A weaker dollar usually lifts commodities priced in the unit, because it makes them cheaper for holders of other currencies.
“On the one hand if you believe in the liquidity argument then copper prices should go higher, but the problem is the fundamentals are still very poor,” Standard Chartered analyst Dan Smith said.
“For me it's all in the balance because the stuff I'm hearing from Europe demand is really poor, some people saying its the worst demand they've seen for 20 years,” Smith said.
Signs of slowing global growth persisted in Asia, where South Korea's industrial output contracted for the third consecutive month, while Japan's industrial output fell more than expected in August.
In China, the world's top consumer of metals, final September figures for the private sector HSBC manufacturing report will be released on Saturday, followed by a National Bureau of Statistics report on Monday.
Bonded copper stocks in Shanghai's customs cleared zones are again on the rise, several traders said, with inventory held by a large warehouse eclipsing record peaks seen at the start of the year.
Total copper stocks held in Shanghai were sitting around 650,000 tonnes, according to several traders with operations in Shanghai, up from around 620,000 tonnes at the start of August.
“Short-term copper is going to have another little test on the upside, but I find it very difficult to get bullish on copper at this point and I would look for that rally to fade fairly quickly,” Smith said.
China's markets will be shut from Oct 1 to 5, draining liquidity from the top metals consumer.
In other metals, three-month tin was $21,700 from $21,195 at the close on Thursday, while zinc was $2,111 from $2,083 close. Lead
was at $2,293 from $2,270 and aluminium was $2,126 from $2,108.
Nickel was $18,618 from $18,345. - Reuters