Copper extended gains from the previous session during which the U.S. Federal Reserve forecast U.S. growth to remain moderate over coming quarters and then pick up gradually, and said it was ready to launch another round of bond buying if the U.S. economy weakens.
Disappointing U.S. jobless claims data seemed to muddy the Fed's bullish growth outlook, but traders said the central bank's more accommodative tone will likely help to keep a floor under prices of copper and other risk assets.
The data has been a little bit softer lately, but Bernanke's comments yesterday were a little bit comforting to the markets, said Matthew Zeman, head of trading with Kingsview Financial in Chicago.
The dollar's not doing much, but a lot of commodities higher ... a lot of the risk assets higher, so people expect the dollar to weaken.
London Metal Exchange (LME) benchmark copper pushed above its 200-day moving average to touch an early-session peak at $8,289.25 a tonne, its priciest level since April 10. Copper went untraded in official rings, but was bid at $8,255.
In New York, the COMEX May contract was up 3.40 cents at $3.7340 per lb by 9:59 a.m. EDT (1359 GMT), after moving between $3.6885 and $3.7460, another high dating back to April 10.
Copper brushed aside a slight retreat in the euro versus the dollar under pressure from a greater-than-expected drop in euro zone economic sentiment in April. Sentiment in Europe fell victim to more pessimistic industry and services sectors, European Commission data showed on Thursday, as the economy sinks into recession.
Data Thursday showed the number of Americans lining up for jobless benefits fell only slightly last week and a trend measure rose, the latest sign of a weaker pace of healing in the still-struggling labor market.
Still, the prospect of additional quantitative easing has raised the outlook for inflation and should help increase asset prices. But economists at most major Wall Street firms say there is less than a 30 percent chance the Fed will undertake another massive round of monetary stimulus, a Reuters poll showed.
We see some confidence about the economy coming back to the market, and that is supporting the euro and supporting the base metals, which have been retreating recently, Eugen Weinberg, an analyst at Commerzbank, said.
In the physical copper market, the premium in cash copper to three-month copper prices rose to $103, nearing the $114 level hit last week, its highest since August 2008.
The tightness in the spot market was also reflected in an eight-year high in the ratio of cancelled warrants to total LME stocks at 42.32 percent, while the total stockpile is near its lowest level since late 2008.
Cancelled warrants are at multiyear highs, and this is pointing to more outflows in the coming weeks and months and that is again helping the copper market, Weinberg said.
Some traders and analysts say the situation was caused by an artificial supply squeeze as some large trading houses held dominant positions on the LME.
The Shanghai copper curve flipped back into a small contango from backwardation in the previous session. A backwardation generally suggests reduced supply availability or increased near-term demand.
The views on price moves are very contradictory, and that's why you see rather high open interest in Shanghai. People who look at fundamentals believe that prices should head south, while those who think the short squeeze will continue expect prices to rise, said a Shanghai-based trader.
RISK SENTIMENT IMPROVES
Copper gained about 11 percent in the first quarter and then has lost more than 2 percent this month under the weight of large stockpiles in Shanghai and worries over weaker demand from China, which consumed about 40 percent of the global supply last year.
But the metal's breakout above its 100-day and 200-day moving averages, at $8,086.80 and $8,224.89, respectively, suggest some price strength going ahead.
We expect the base metal complex to trade sideways to higher as recent attempts to make new yearly lows have failed. Momentum indicators have turned positive, albeit from depressed levels, which should leave the market open to near-term bouts of short-covering rallies, RBS analysts said in a note.
Overall we do not see the markets straying too far out of recent trading ranges.
Strong corporate profits emerging on both sides of the Atlantic also supported risk sentiment, but investors were cautious before a key test of demand for euro zone debt on Friday when Italy sells new bonds.
In other metals, aluminium traded at $2,081 in official rings from Wednesday's close of $2,075, while zinc was at $2,022 from $2,005.50. Lead was untraded in official rings, but bid at $2,112 from $2,091.
Tin was also untraded but bid at $22,450 from $21,925, while nickel traded at $18,075 from $17,605.
(Additional reporting by Rujun Shen in Singapore, editing by Jane Baird and Jim Marshall)