By Susan Thomas and Harpreet Bhal
LONDON | Tue Jun 19, 2012 10:59am EDT
(Reuters) - Copper rose on Tuesday, supported by a weak dollar ahead of a U.S. Federal Reserve policy meeting, but gains were kept in check by concerns about the euro zone's debt problems as Spanish and Italian bond yields spiked.
Three-month copper on the London Metal Exchange rose to $7,565 a tonne at 1007 EDT, up 0.7 percent from a close of $7,510 on Monday, when it had hit $7,615, the highest level since May 30, after the election victory of Greece's pro-bailout parties.
"The Greek elections came and went and the euphoria didn't last long because people are more concerned about Spain. And we're in a holding pattern waiting for the Fed statement," said Edward Meir, analyst at INTL FCStone.
Spain's short-term borrowing costs rose to their highest level since 1997 in a debt sale on Tuesday as investors worried the country will soon be forced to ask for international aid.
Those concerns offset more positive news that Greece's conservatives were expected to form a coalition government with the Socialists on Tuesday, allowing the two parties that dominated politics for decades to share power.
"The benign outcome of the Greek election was a non-event for commodity prices, which had preemptively risen last week," RBS said in a research note.
Investors were also cautious before a two-day Federal Reserve policy meeting due to begin later on Tuesday. Investors expected the Fed to announce some form of monetary easing this month - a belief that helped to put a floor under prices.
The dollar fell against a basket of currencies. A weaker dollar makes commodities priced in the unit less expensive for holders of other currencies.
SLUGGISH
In the physical market, traders said copper demand in top consumer China was sluggish.
"We feel a marked slowdown in demand for our products this year as compared to the same period in previous years. Domestic demand is slowing, and so is Europe's demand for China's exports," said an executive with a top Chinese copper fabricator.
"Other than the electronics industry, which is still doing OK, the rest of our downstream clients are struggling. The government's infrastructure spending has not started to benefit our clients in the construction industry yet."
Copper is used extensively in construction and power.
Although liquidity was gradually easing and Beijing has approved a number of infrastructure projects, industry participants said its impact on copper markets would only be felt late in the third quarter or towards the end of the year.
Tin was at $19,499 a tonne from Monday's close of $19,500 while zinc was at $1,882.25 a tonne from $1,880.
Lead traded at $1,901.25 a tonne from $1,895 and aluminum was at $1,926 a tonne from $1,930. Nickel traded at $16,850 a tonne from $16,650.
