SHANGHAI: Copper surged on Tuesday as hopes of further monetary easing by major central banks helped offset worries stoked by grim macroeconomic data and nagging concerns over the festering debt crisis in Europe.
A surprise rise in China's services sector Purchasing Managers' Index (PMI), which snapped two months of decline to expand at its fastest pace in three months in June, also buoyed market sentiment and boosted prices.
Three-month copper on the London Metal Exchange jumped 2.2 percent to a session high of $7,790 a tonne on Tuesday, its highest since May 22, before paring $11 to $7,779 per tonne by 0402 GMT.
The most-active October copper contract on the Shanghai Futures Exchange moved up 1.7 percent to a near 7-week high of 56,310 yuan a tonne in the morning. It was at 56,070 yuan by its midday close, stretching gains into a fourth session.
"Positive news on the policy front has helped base metal prices to rise today. People are hopeful that the U.S. will roll out QE3, the ECB will cut rates and China will lower RRR further," said CIFCO Futures analyst Zhou Jie.
U.S. manufacturing shrank in June for the first time in nearly three years, adding to signs of a slowdown in the recovery but raising hopes for steps such as a third-round of so-called quantitative easing from the Federal Reserve.
The fragile state of the euro zone economy prompted anticipation of an interest rate cut by the European Central Bank this week as policy action at a European Union summit provided only fleeting relief to volatile sovereign debt markets.
Expectations increased for an imminent bank reserve ratio cut in China after a state-owned paper called for such a move in a front-page editorial, saying that a reduction was needed to boost liquidity and stabilise economic growth.
Still, CIFCO's Zhou warned that gains in base metals during the session may be capped as even if easing steps are rolled out as anticipated, it would take some months for them to start improving demand for Chinese base metals, which are plagued by weaker consumption and are going through a destocking cycle.
"Copper is faring the best among the base metals as there is still some physical demand due to bargain hunting. But to sustain the present rally, we need real solutions to current global economic challenges," he added.
In the physical market, traders are also bracing for a replay of the April squeeze that made copper expensive to obtain quickly, saying major trader Glencore controls almost half the inventories of the commodity held in London Metal Exchange-registered warehouses worldwide.
They said that a potential rebound of demand in China, the world's top copper consumer, combined with tightly-controlled LME stocks, could constrict the market in coming months in an even more severe version of what happened this spring.
