Copper hit a three-week high on Tuesday, lifted by fund allocations at the start of the year and by an expansion in China's manufacturing activity, which boosted hopes that demand for industrial metals will increase.
Gains were kept in check, however, as Europe's debt crisis remains unresolved, clouding the outlook for the global economy and for metals demand this year.
Three-month copper on the London Metal Exchange rose 1.05 percent to $7,680 a tonne in official midday rings from $7,600 at the previous close, having earlier hit its highest since December 12 at $7,710. Volumes were low at 5,515 lots, compared with the 30-day moving average of 16,383 lots.
The metal, used in power and construction, posted its first annual decline in three years in 2011 when it lost a fifth of its value on fears related to the euro zone debt crisis and the global economic slowdown.
Funds are now investing again, taking a bit more risk after a poor year, and this is supporting the base metals. (China data) is of course also a supporting factor, said Quantitative Commodity Research analyst Peter Fertig.
He added, however, that the outlook is shaky. It will depend on whether the debt crisis calms down or whether investors remains jittery, (which) would be negative for metals.
China's official purchasing managers' index (PMI) rose to 50.3 in December from 49 in November, indicating a slight expansion in business activity in the factory sector, but downward risks persist.
Meanwhile the euro and European stocks got a lift from news that German unemployment fell more than expected in December with the jobless rate at 6.8 percent, its lowest level since the unification of Germany two decades ago.
A stronger euro makes dollar-priced commodities cheaper for European investors.
China's PMI number looks positive, better than most people had expected earlier on, said Huang Yiping, chief economist for emerging Asia at Barclays Capital in Hong Kong.
But caution remains in the market. The euro zone economy is declining, it's in negative growth.
For a 24-hour copper technical outlook: http://graphics.thomsonreuters.com/WT1/20120301094538.jpg
Futures positioning euro at record shorts: http://link.reuters.com/pyv93s
Asset correlations with the euro: http://link.reuters.com/cub85s
Asset returns in 2011: http://r.reuters.com/suz52
Debt crisis in graphics: http://r.reuters.com/hyb65p
Also aiding copper, workers at Freeport McMoran Copper & Gold Inc's
LME copper faces a resistance at $7,689 a tonne and only a rise above this could open the way to $7,887, according to Reuters technical analyst Wang Tao.
With trading conditions quiet, investor attention will turn to US ISM manufacturing PMI data for December, due later in the session.
On Monday, a survey showed euro zone manufacturing activity declined for a fifth consecutive month in December, although at a slightly slower rate than November's 28-month record low, suggesting the decline would continue in the early months of 2012.
In other metals traded, soldering metal tin rose 1.51 percent to a last bid at $19,490 a tonne in rings from $19,200, having earlier hit a 3-week high at $19,495, while zinc, used in galvanizing, rose 0.22 percent to trade at $1,849 from $1,845.
Battery material lead fell 0.93 percent to trade at $2,015 from $2,034, having earlier hit a near three week high at $2,055.75, aluminium rose 0.74 percent to trade at $2,035 a tonne from $2,020 while stainless-steel ingredient nickel fell 1.21 percent to $18,425 from $18,650.
In industry news, Rio Tinto Alcan will shut down about a third of the production at its 438,000-tonne Alma aluminium smelter in the Canadian province of Quebec after locking out hundreds of unionized workers in a contract dispute.
(Reporting By Maytaal Angel; editing by Keiron Henderson)