LONDON: 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.
