By Millie Munshi and Glenys Sim May 3 (Bloomberg) -- Copper prices dropped to a nine-week low after China ordered banks to set aside more deposits as reserves, fueling concern that the lending curbs by the world’s biggest metals consumer will damp demand. The People’s Bank of China said on its website yesterday that banks’ reserve requirements will be increased by 50 basis points effective May 10. The increase is the third this year as the government seeks to slow economic growth in a bid to curb inflation. Copper prices dropped 5.6 percent last month on concerns that consumption will trail production. “Money is flowing out of copper and the rest of commodities on concerns about demand,” said Michael K. Smith, the president of T&K Futures & Options in Port St. Lucie, Florida. “China tightening is adding to bearish sentiment.” Copper for July delivery fell 7.25 cents, or 2.2 percent, to $3.281 a pound at 11:17 a.m. on the Comex in New York. Earlier, the price touched $3.2735, the lowest for a most-active contract since Feb. 26. Markets in London and Shanghai are closed today for holidays. “The commodities that are relating to Chinese growth, I would avoid for the time being,” said investor Marc Faber, the publisher of the Gloom, Boom & Doom report. “The symptoms of a major bubble are all there.” The metal extended declines as the dollar rebounded, reducing the appeal of commodities as alternative assets. The greenback added as much as 0.8 percent against a basket of six currencies, snapping two days of declines. Traders shrugged off a private report that showed U.S. manufacturing last month expanded at the fastest pace since 2004. Before today, copper had gained 64 percent in the past 12 months as the global economic recovery boosted consumption. Today’s drop “may be a short-term correction,” Smith of T&K said. “We’re still getting strong economic data and the big-picture growth story is still there.”

Source