Shanghai copper prices eased on Wednesday, under pressure from a sharp decline in Japan's economy and an unexpected fall in U.S. housing starts in April that defused investor confidence for an economic recovery.
The surprise fall in new U.S. home construction to record low in April on Tuesday was compounded on Wednesday by data showing Japan's economy shrank 4 percent in the first quarter, the biggest contraction on record, and reawakened fears that the worst of the global economic downturn may not be over.
Japan's Finance Minister Kaoru Yosano said the data reflected a rapid deterioration in the economy, though the figures also contained some brighter spots.
Third-month benchmark Shanghai copper fell 80 yuan to 36,780 yuan a tonne by midday, paring Tuesday's gains when the market surged by its 5 percent daily limit.
"The financial markets and the macro data are driving copper now. China will underpin with physical buying between $3,800 and $4,000, but don't expect Shanghai to lead London like it did for the first four months of the year," a trader in Shanghai said.
"The Western world is trying to decide whether we have seen the bottom of the economic downturn. In China all they are trying to do is digest the 800,000 tonnes of copper cathode and scrap imported last month."
London Metal Exchange copper for delivery in three months rose $25 to $4,575 a tonne at 0333 GMT.
In the past week copper has traded either side of the 200-day moving average, currently at $4,544, which has acted as both support and resistance -- inspiring short-covering when prices are above the line and selling when prices are below.
