copper eases after rally

Copper eases after rally, focus on US economy
Thu 20 Sep 2007, 8:49 GMT

[-] Text [+] By Anna Stablum

LONDON (Reuters) - Copper prices softened on Thursday as the euphoria triggered by rate cuts in the United States faded and the market started to look again at economic fundamentals in the world's biggest economy.

"Most of the rise yesterday was due to dollar slide and this may extend to today's session too. Though the housing sector woes may cap any aggressive moves, the trend is quite firm," analyst Pradeep Unni at Vision Commodities said.

Copper for three-month delivery on the London Metal Exchange was at 0903 GMT at $7,830/7,850 a tonne, down from $7,885 on Wednesday when it touched $7,930, the highest since August 1.

The dollar sank to a fresh record low below $1.40 per euro, weighed down by a hefty U.S. interest rate cut earlier this week and expectations of more cuts to come.

A weak U.S. currency makes dollar-priced metals cheaper for holders of other currencies and tends to support metal prices.

The problems in the U.S. housing sector were highlighted on Wednesday with U.S. home construction starts falling 2.6 percent in August -- their lowest level in more than 12 years.

Traders said the market was consolidating after Wednesday's rally with nickel up by as much as 12.3 percent to a two-month high of $34,500 and zinc rose 6.5 percent at one point.

Zinc fell $45 to $2,935/2,955 and nickel, the key ingredient in stainless steel, fell $300 to $33,500/33,700.

"Stainless steel stocks are being run down and the equity analysts are making favourable comments about the sector," a trader in Singapore said.

"Nickel has gone a little further than we thought, but we remain reasonably friendly. Just don't get carried away."

The market will watch U.S. jobless claims data due 1230 GMT for more clues about the state of the U.S. economy.

After Tuesday's U.S. rate cut by half a percentage point to 4.75 percent, analysts would watch Fed Chairman Ben Bernanke's testimony before a House financial services committee.

"We've got U.S. jobless claims and then Ben is due to speak on credit markets later and this could have an impact on the broader spectrum," an LME trader said.

The FTSEurofirst 300 index of top European shares slipped 0.8 percent after gaining 2.6 percent on Wednesday.

Three-months aluminium was at $2,468/2,473 from $2,484 on Wednesday. The metal has come under pressure in recent weeks from worries about an oversupplied market, rising stocks in LME warehouses and large short positions.

National Australia Bank said in a report that the peak for base metal prices had past, with metal prices forecast to decline across 2008.

"The current relative weakness in base metal markets is largely sentiment based - related to the U.S. subprime housing/equity crisis - but fundamentals should push prices lower next year, as metal markets move into surplus," it said.

However, prices would remain historically high with minimal stock coverage in the event of a supply disruption, it added.

The union at Southern Copper's Toquepala copper mine in Peru said late Wednesday it had voted to go on strike starting October 2. Two other key unions at the leading copper producing company's Peruvian operations will hold votes about starting a strike on Thursday.

Lead fell 1.1 percent or $35 to $3,200/3,210 and tin was down $200 to $15,150/15,250.