Copper slipped on Monday as the dollar rose and enthusiasm for Europe's debt deal gave way to realism that the regions' economic problems are far from over, though the metal remained on track for its biggest monthly rise since last December.
Three-month copper on the London Metal Exchange fell 2.9 percent to $7,940 a tonne by 1036 GMT, but was still on track to end October up 13.3 percent in the biggest monthly rise since December 2010.
The red metal is being supported by strong fundamentals, including continued supply disruptions at the world's second largest copper mine, Grasberg in Indonesia, and steady spot demand in China, the world's top consumer of the metal.
But weighing on sentiment for now are renewed worries that economic problems in Europe will crimp demand, with markets awaiting further details on a deal secured last week to tackle the regions debt problems.
"There is some realism coming back to the market, the problems in Europe are far from being solved. The market was impressed by the deal but details are not yet clear. If its seen as play on time then it might again come to disappointment," said Commerzbank analyst Eugen Weinberg.
Stoking fears over the deal's validity were comments earlier from the head of Europe's 440 billion euro bailout fund playing down hopes that China will throw its support behind efforts to resolve the bloc's debt crisis.
Also, Italy's borrowing costs jumped to record levels on Friday, underlining its vulnerability at the heart of the debt crisis and scepticism about whether the struggling government of Prime Minister Silvio Berlusconi can deliver vital reforms.
"In our view, industrial metals are currently at the crossroads, with economic data and monetary policy decisions due this week being crucial. There is the risk that copper prices could retreat back below USD 8000 if risk sentiment deteriorates only slightly," said Credit Suisse in a note.
Markets are awaiting US and China manufacturing PMI data scheduled for Tuesday, for further clues on the economic outlook. A precursor to these figures will be the U.S. data on manufacturing in Chicago and Texas, due later this session.
On Thursday meanwhile, players are betting a European central bank policy meeting could deliver an interest rate cut for December. Analysts said the euro could remain weak ahead of the meeting.
The euro slid versus the dollar on Monday, taking its cue from the Japanese yen, which hit a 3 month low versus the greenback after Japan intervened to weaken its currency. A weak euro makes dollar-priced metals costly for European investors.
