* Spain sells two- and 10-year bonds, markets unconvinced
* Focus still on Chinese stocks
* China may raise liquidity via open market operations
By Veronica Brown
LONDON, April 19 (Reuters) - Copper fell on Thursday, closing in on recent
three-month lows after Spain's keenly awaited bond auction failed to soothe
worries on its long-term fiscal outlook.
Rumours that France's sovereign rating may be downgraded further undermined
the euro, also clouding sentiment towards commodities.
All markets were in cautious mode ahead of the Spanish debt sale but even
though decent demand emerged for the two- and 10-year paper, the auction fell
short of market expectations - keeping unease about the single currency area in
sharp focus.
Three-month copper on the London Metal Exchange traded down $45 to
$8,005 in official midday rings, having hit a three-month low at $7,885.25 early
this week.
"It's pretty clear that the Spanish auction has not been a game changer at
all, with no fundamental shift in market sentiment," Capital Economics
commodities economist Ross Strachan said.
"The main drivers as we look ahead are still set to be the weakness of
demand flowing out of Europe and to a certain extent China and that will drag
more and more on the base metals sector," he added.
Hopes for more Chinese monetary easing were stirred by a report by China's
official Xinhua news agency that the country may increase liquidity via open
market operations and a cut in banks' required reserves to steer the economy to
a soft landing.
But with copper warehouse stocks still at high levels in China, sentiment
would still be fairly soft, analysts said, until concrete signs of demand
emerged.
"As long as stockpiles remain high in China, copper consumers will continue
to stay away even if prices slip. It's not a matter of price levels now, but a
matter of confidence. We need something to boost morale - be it news of the
economy picking up, or of stockpiles going down," said CIFCO analyst Zhou Jie.
On a positive note, the head of the International Monetary Fund said member
countries had committed $316 billion toward new IMF resources to help contain
the debt crisis in the euro zone.
But lingering fears over a slowing global economy remain, as data showed
Spain's banks continued to battle sliding house prices and a looming recession.
Bad loans rose to their highest level since October 1994 in February, to stand
at 8.2 percent of their credit portfolios.
In market structure, pressure remained for holders of short positions for
April delivery. Cash copper was last seen at an $88-a-tonne premium to the
three-month contract by the close of business on Wednesday.
"The backwardation has eased but does not appear to have gone away as there
is still tightness right through to April 27. It seems that the short positions
have been rolled over to nearby dates," said one LME trader.
"Since the backwardation is due to certain parties holding a dominant long
position on the LME and not due to an actual pickup in real demand, I think the
squeeze will persist into May," a Singapore-based trader said.
In other metals, aluminium was marginally lower at $2,056 a tonne in
official rings, while tin was last bid at $21,200. Zinc
was last bid at $1,996.
Battery material lead was last bid at $2,047 , while nickel
rose to $17,680.
Metal Prices at 1212 GMT GMT
Comex copper in cents/lb, LME prices in $/T and SHFE prices in yuan/T
Metal Last Change Pct Move End 2011 Ytd Pct
move
COMEX Cu 361.80 -1.30 -0.36 344.75 4.95
LME Alum 2055.25 -3.75 -0.18 2020.00 1.75
LME Cu 8007.75 -42.25 -0.52 7600.00 5.37
LME Lead 2044.50 -0.50 -0.02 2034.00 0.52
LME Nickel 17685.00 55.00 +0.31 18650.00 -5.17
LME Tin 21050.00 50.00 +0.24 19200.00 9.64
LME Zinc 1996.25 4.25 +0.21 1845.00 8.20
SHFE Alu 16075.00 -35.00 -0.22 15845.00 1.45
SHFE Cu* 57670.00 -150.00 -0.26 55360.00 4.17
SHFE Zin 15470.00 -65.00 -0.42 14795.00 4.56
** Benchmark month for COMEX copper
* 3rd contract month for SHFE AL, CU and ZN
SHFE ZN began trading on 26/3/07
