Metals - Copper up on supply tightness but gains limited ahead...

Metals - Copper up on supply tightness but gains limited ahead of Fed UPDATE
09.18.07, 7:05 AM ET

(Updates prices, adds details)

LONDON (Thomson Financial) - Copper rose as traders digested further falls in LME inventories and supply side risks in South America, but gains were limited ahead of today's rate-setting meeting by the US Federal Reserve.

The Fed is widely expected to cut rates by at least 25 basis points at its meeting later today in a bid to defend the economy against the current housing and credit woes.

The housing and credit problems have weighed on copper recently as traders fear any sign of recession in the world's second-biggest copper consumer might crimp demand for the metal.

At 10.40 am, copper for three-month delivery was trading up at 7,555 usd per tonne against 7,510 usd at the close yesterday.

The LME said in a daily report copper stocks held in its warehouses fell again, this time by 525 tonnes to total 133,225 tonnes. The news underpinned copper.

At the same time, news that workers at Southern Copper (nyse: PCU - news - people ) Corp will vote on industrial action later this week also lent support to copper.

However, gains were capped by lingering concerns over the state of the US and the global economy, and by worries over what the statement accompanying today's Fed rate verdict will say about US economic growth and monetary policy.

'If the Fed sends a clear message that further easing is needed to mitigate the effects of this summer's events, other central banks will be under pressure to incorporate the Fed's outlook and general global growth moderation into their respective economic outlooks,' said UBS (nyse: UBS - news - people ) Investment Bank analyst Robin Bhar.

He added, however, that while a constructive Fed policy statement and interest rate cut would likely result in a knee-jerk bounce in base metals, he doubts the bounce can be sustained given the worries over the macro environment.

Elsewhere, metals traders were again tracking European equity markets for further indications over the extent to which the current global credit crunch is spreading.

European equities fell sharply yesterday and last Friday on news that UK mortgage lender Northern Rock had sought emergency funding from the Bank of England.

The lender, which has fallen victim to the sharp rise in borrowing costs between banks, is now widely expected to be sold, nationalised or radically restructured.

However, its shares actually rose today, after UK Chancellor Alistair Darling said the government will guarantee all Northern Rock savings and insisted no other bank had gone to the BoE for help.

The news helped lift European equity markets today and underpinned base metals like copper, which also took a boost from near record high oil prices and rallying gold prices.

Among other metals, three-month nickel rose to 29,600 usd per tonne against 29,000 usd yesterday, boosted by a fall in LME inventories and news out yesterday that demand from the stainless steel industry is set to rise.

Aluminium bucked the slightly stronger trend in metals, dipping to 2,387 usd per tonne from 2,395 usd yesterday amid yet another large rise in LME inventories, this time by 5,300 tonnes.

Tin was up at 15,000 usd per tonne against 14,850, lead inched up to 3,145 usd per tonne from 3,131 usd while zinc rose to 2,800 usd per tonne from 2,785 usd.