Reuters reported that copper dropped coming off one month highs hit in the previous session as hopes for more US stimulus measures faded and on worrying signs that Spain, the fourth largest economy in the euro zone could need sovereign aid. As per report, mixed messages from Fed officials with one playing down the odds of imminent bond buying saying the US economic outlook had brightened and another seeing a lot of reason for more easing, led investors to scale back their expectations of strong stimulus from the Federal Reserve. An analyst with an international trading firm said that Base metal prices rose on stimulus hopes yesterday, powering copper above USD 7,600 but the upward momentum proved to be short term when those hopes were not followed up with real policies. With stimulus hopes still priced in at these levels, there is more downside room in copper as these hopes fade. Three month copper on the London Metal Exchange fell 0.8% to USD 7,626 per tonne by 0408 GMT after hitting its highest since July 20th 2012 in the previous session led by strong stimulus hopes after manufacturing surveys from the euro zone and China depicted a bleak outlook. The most active December copper contract on the Shanghai Futures Exchange edged down 0.7% to CNY 55,600 per tonne by its midday close after rising to CNY 56,130 on Thursday, the highest since July 20. Three sources with knowledge of the matter said that also dampening sentiment was news that Spain was in talks with euro zone partners over a sovereign aid although it has not made a final request for a bailout. Mixed US economic data which showed manufacturing activity improving slightly in August but weekly jobless claims unexpectedly rising last week, means investors would likely exit their positions and wait for better data before pushing up prices. The analyst said that there has been a drop in net open interest in London copper which means yesterday's rally was up on short covering. It'll take a lot of conviction to get fresh longs to come in at this point, so we will be facing pressure from the shorts today. Most recent LME data showed a net reduction of 810 lots in daily open interest on Wednesday, while an increase in net daily open interest in Shanghai copper against falling prices on Friday also indicates the entry of fresh shorts. In China, the world's largest buyer of copper and other industrial metals, signs of the much anticipation stimulus action were just as elusive. Although manufacturing sector from the world's second-largest economy contracted at its sharpest pace in nine months in August, market watchers are ruling out a previously expected cut in banks' required reserve ratio after the Chinese central bank injected a 7 month high amount of funds into the financial system.

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