U.S. copper futures ended with gains on Tuesday as traders speculated that the Federal Reserve's benchmark interest rate cut may increase demand for the red metal.

The Fed cut the rate banks can charge each other by three quarters of a percentage point to 2.25 percent. Specialists expected a cut as strong as 1 percentage point.

Crude futures gained 6.15 cents or 1.7 percent to settle at $3.7465 a pound on the Comex division of the New York Mercantile Exchange. Copper prices reached their highest price since May 2006 on March 6 trading at $4.024 a pound.

The Federal Reserve said the cut was made to foster market liquidity, promote moderate growth over time and mitigate the risks to economic activity..

A discount in interest rate costs has sent the dollar lower against major currencies, spurring investments into commodities to compensate for inflation.

Copper futures dropped as much as 3.7 percent yesterday, the biggest decline since January 23 as JPMorgan Chase & Co. purchased struggling Bear Stearns Cos. with help from the Fed to keep it from falling into bankruptcy and avoid the spread of reduced confidence in the financial markets.

Worries about the economy and demand for the metal were also raised by a report about housing starts today., The Commerce Department reported that new home construction in the U.S. dropped in February by 0.6 percent. Building permits also dropped to their lowest level in 16 years.

Data showed copper inventories in London Metal Exchange fell 925 metric tons to 124, 575 metric tons on Tuesday. Copper stocks monitored in the Comex division of the New York Mercantile Exchange were down to 12,474 short tons on Monday.

Copper futures on the London Metal Exchange for delivery in three months dropped $307 or 3.65 percent to $8,122 a metric ton today.