METALS-Econ outlook optimism sends copper to 4-mth high

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September 2, 2010 4:08 PM EDT

Copper rose to its highest in more than four months on Thursday as recent economic data from the world's two largest economies, the United States and China, brightened the outlook for demand.

Copper CMCU3 for three-months delivery on the London Metal
Exchange firmed to $7,650 a tonne at 1305 GMT compared with a
close of $7,606 a tonne on Wednesday. It touched $7,689 earlier,
its highest since April 27.

A slew of upbeat U.S. data on Thursday boosted sentiment.
Sales of previously owned homes rose unexpectedly in July,
factory orders edged up and claims for unemployment benefits
fell. For details, see [ID:nN02124974], [ID:nN02208367] and
[ID:nN02194957]

"Markets have become far too pessimistic about the
possibility for double dip and the like. We'll see increasingly
better data through to the back end of this year," said Tom
Kendall, an analyst at Credit Suisse.

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"Copper has some good underlying fundamentals. Consumer
demand remains strong especially in Asia, so it's not just a
fund move."

Also lending support, the euro edged up versus the dollar,
supported by healthy results at Spanish and French bond auctions
and stable global equities. A strong euro makes dollar-priced
metals cheaper for European investors. [USD/]

Copper also rallied on Wednesday as investors felt more
comfortable betting on riskier assets after key manufacturing
data from the U.S. and China beat expectations. [ID:nN01115648]
[ID:nTOE68001O] [ID:nN01115648]

"It doesn't look as bad as it did before," said Jesper
Dannesboe, senior commodity strategist at Societe Generale,
referring to the economic outlook after strong Chinese and U.S.
PMI data.

"It looks like there's not going to be a double-dip
recession, but maybe a period of slowdown of the recovery."

The positive data from the world's top two economies
overcame a weak U.S. private sector payrolls number that the
market largely ignored. However, the U.S. jobs market will swing
back into focus on Friday with key government employment data
for August. [ID:nN01115648] [ID:nTOE68001O]

"A lot will ride on what happens with the U.S. macro numbers
... with Friday's key nonfarm payroll figures being especially
critical. The number could disappoint given that the private
sector ADP payroll report came in on the negative side," said MF
Global in a note.

CAUTIOUS

Other data from metal-consuming industries such as the auto
sector was not rosy on Wednesday.

Automakers posted their weakest U.S. August sales in 27
years, underscoring uncertainty about the strength of the
recovery in the world's largest economy.

But in Europe, growth data looked upbeat, with gross
domestic product in the 16-nation currency area expanding by 1.9
percent in the second quarter, compared with a previous reading
of 1.7 percent.[ID:nBRL2KE64X]

Moreover, falling stocks, which indicate demand trends,
continued to offer support for copper prices. Inventories now
stand at 399,000 tonnes, their lowest since November 2009, and
cancelled warrants -- material earmarked for delivery -- account
for 7.25 percent of the total stocks.

In other metals, LME nickel CMNI3 gained 3 percent to
$21,699 a tonne, having hit $21,725 earlier, its highest since
August 20, while lead CMPB3 was last at $2,157 a tonne versus
Wednesday's $2,115 a tonne, having hit $2,180 earlier, its
highest since Aug 10.

Zinc CMZN3 rose to $2,175 a tonne from $2,133, having hit
a four month high of $2,194 earlier..

"The Chinese prefer to arb zinc rather than copper. The
volumes some days are very strong," a Sydney trader said.

The differential between LME zinc and the Shanghai benchmark
was open a fraction at around 100 yuan ($14.68) per tonne in
favour of importing zinc, accounting for import duties and VAT