MARKETS-METALS (UPDATE 5) * Demand dipping as Northern Hemisphere summer kicks in * Yuan dips a day after China pledges freer currency trade (Updates prices, adds detail and new quotes) By Rebekah Curtis and Sue Thomas LONDON, June 22 (Reuters) - Copper fell on Tuesday with concerns about the outlook for demand resurfacing as investors tempered enthusiasm about China's decision to give its currency more flexibility, a move that fuelled a rally the day before. Copper for three months delivery on the London Metal Exchange traded at $6,540 a tonne at 1438 GMT from a close of $6,595 on Monday. "It was a knee-jerk reaction to China relaxing its exchange rate and now people are coming back to remind themselves the economic situation around the world is not quite as good as they had hoped," said Charles Kernot, an analyst as Evolution Securities. Investors are concerned austerity measures by governments to fix their economies will crimp demand for industrial metals. Copper is used extensively in construction. Stoking demand concerns, the UK on Tuesday unveiled tough spending cuts and tax rises, while Japan set ambitious targets to rein in debt that it said could not be met even under its rosiest growth scenario. In the United States, sales of previously owned homes fell unexpectedly in May as delays in processing mortgage applications hampered the closing of contracts benefiting from a popular homebuyer tax credit. "Economic concerns, specifically concerns about U.S. housing, are an issue and weighing on prices today," said Daniel Brebner, metals analyst at Deutsche Bank. "As well, there's a lot of debate about the impact of austerity measures globally as ministers start to meet for the G20," he added. "There are concerns about what impact that will have on demand." The G20 meeting takes place later this week in Toronto. Metals rallied on Monday after China's weekend move to make its yuan currency more flexible boosted the purchasing power of the world's top base metals consumer. The yuan slipped on Tuesday after hitting its highest level since the currency was revalued in 2005, as Beijing made clear its vow of flexibility did not include only one-way bets for appreciation. FUNDAMENTALS STILL WEAK Royal Bank of Scotland, which expects the yuan to firm by 3 percent against the dollar by end-2010, said China's move did little to change the fundamentals in the commodity markets. "We remain concerned about the sustainability of the recovery in U.S. commodity demand, weaker than anticipated demand in Europe, the impact of a slowdown in the Chinese construction sector and reactivation of idle production capacity," RBS said in a note. World refined copper consumption exceeded production by 1,000 tonnes between January and March this year, against a surplus of 139,000 tonnes in the same year-ago period. Signalling a possible demand pick-up, stocks of industrial metals have been falling steadily in recent months. Stocks of aluminium last fell 10,000 tonnes to around 4.46 million tonnes, down from a record above 4.6 million tonnes earlier this year. Aluminium was at $1,940 from $1,963. Zinc was at $1,790 from $1,775 and battery material lead was quoted at $1,810.25 from $1,833. Tin was quoted at $18,000 from a last quote of $17,800/17,900 and nickel was at $19,782 from $19,850. Metal Prices at 1435 GMT Metal Last Change Percent Move End 2009 Ytd Percent move COMEX Cu 294.35 0.15 +0.05 334.65 -12.04 LME Alum 1934.00 -29.00 -1.48 2230.00 -13.27 LME Cu 6534.00 -61.00 -0.92 7375.00 -11.40 LME Lead 1808.00 -25.00 -1.36 2432.00 -25.66 LME Nickel 19700.00 -150.00 -0.76 18525.00 6.34 LME Tin 17850.00 105.00 +0.59 16950.00 5.31 LME Zinc 1787.00 12.00 +0.68 2560.00 -30.20 SHFE Alu 14775.00 -230.00 -1.53 17160.00 -13.90 SHFE Cu* 52840.00 -860.00 -1.60 59900.00 -11.79 SHFE Zin 14810.00 -35.00 -0.24 21195.00 -30.13 ** Benchmark month for COMEX copper * 3rd contract month for SHFE AL, CU and ZN SHFE ZN began trading on 26/3/07 (Additional reporting by Sue Thomas in London and Manolo Serapio Jr. in Manila; Editing by Veronica Brown)

Source