Copper steadied on Friday, pausing for breath after the previous session's hefty falls, although growing concerns about a slowdown in the United States and a debt crisis in Europe weighed on sentiment and capped further gains for the metal.
Benchmark copper was trading at $8,786 at 0920 GMT, up slightly from Thursday's close of $8,774 a tonne. The metal used in power and construction earlier fell to a low of $8,700, its lowest level since August 11.
Short-term we are negative on base metals and we think that cautiousness is warranted at this point in time, said Arne Lohman Rasmussen, analyst at Danske Bank.
Investors have grown increasingly uneasy after disappointing data from the United States prompted fears a slowdown in the world's largest economy would hit global growth prospects, compounded by a worsening debt crisis in the euro zone.
Investors dumped assets perceived as risky, such as stocks, in favour of safe-haven gold, which surged to a fresh record high.
The dollar edged lower against a basket of currencies, offering a modest boost to metals prices. A weak dollar makes commodities priced in the U.S. unit cheaper for holders of other currencies.
We know that there are some long positions (in base metals) out there that could easily be squared out especially if we start to see euro/dollar moving lower and we see a risk of that, Rasmussen said.
Copper prices have fallen more than 10 percent so far this month, and are on track to post a third consecutive week of falls.
Supply threats in Latin America are also on investors radar screens. Workers at Chile's Collahuasi, the world's No. 3 copper mine, have threatened a one-day stoppage on Sept. 2 if the company does not hire back workers fired after a previous disruption.
Setting aside the weak macro environment, copper's fundamentals remain well-supported. Risks of short-term disputes and potential supply outages remain, ANZ said in a note.
In a further boost to copper, inventories in warehouses monitored by the Shanghai Futures Exchange fell 7.3 percent from last Friday, raising expectations that destocking in China was under way . Aluminium stocks fell by 5.8 percent.
China has already taken advantage of the fall in prices since the start of the month and bought copper especially in anticipation of a global supply deficit. This should be reflected in higher imports in the coming months, Commerzbank said in a note.
Copper imports have already picked up again in the last two months, not least because of attractive arbitrage opportunities between the exchanges in London and Shanghai.
China accounts for nearly 40 percent of global copper demand, estimated at around 19 million tonnes this year.
Data from the London Metal Exchange (LME) showed aluminium stocks in warehouses monitored by the LME rose by 104,425 tonnes, with large inflows into the Dutch port of Vlissingen.
About 70 percent of aluminium stocks are tied up in financing deals, and analysts say these deals are unlikely to be unwound soon given the limited money-making opportunities available to banks facing historically low interest rates.
A typical deal consists of banks buying nearby aluminium from a producer, selling it forward at a profit and striking a warehouse deal to store it cheaply for an extended time period.
Aluminium was trading at $2,330 a tonne. It was untraded at the close on Thursday, but bid at $2,338 a tonne.
Tin rose to $23,001 after closing at $22,750 on Thursday when it fell by more than 5 percent.
Zinc fell to £2,170 from $2,178 while lead fell to $2,291 from Thursday's close of $2,301. Nickel slipped to $21,290 from $21,300.