Copper touched a six-week high on Monday on promising manufacturing data from top metals consumer China, but doubts over the soundness of the global economy put a lid on gains. Benchmark copper on the London Metal Exchange hit $8,045 a tonne, the highest since October 19, before closing at $8,005, from Friday's close at $7,994.
The pace of activity in China's manufacturing sector quickened for the first time in 13 months in November, a survey of private factory managers found, adding to evidence the economy is reviving after seven quarters of slowing growth and boosting metals prices.
China consumes about 40 percent of the global copper supply. Data also showed that the contraction in Europe's embattled manufacturing sector eased to an eight-month low in November, although a meaningful recovery still looked a long way off.
Doubts on the world's economic growth remained, however, as Chinese shares closed at their lowest level since the first quarter of 2009 and data showed the US manufacturing sector had unexpectedly contracted in November, falling to its lowest in over three years. "The US manufacturing data feeds expectations that the Federal Reserve will announce a fourth round of quantitative easing on December 14, and the Chinese manufacturing data suggests the rally could continue to $8,150 in the next few days," T-Commodity consultant Gianclaudio Torlizzi said.
"However, I am a bit worried about the Shanghai composite index, which continues to lose ground. It has a high correlation with copper prices, so I think the rally is still vulnerable." The Shanghai Composite Index shed 1 percent on Monday to reach its lowest close since January 2009, and the slide may have more room to run as more retail investors, the market's mainstay, throw in the towel and look elsewhere to make money.
Metals were also held back by continued uncertainty over the so-called US fiscal cliff - $600 billion in government spending reductions and expiring tax cuts set to kick in at the start of next year that threaten to tips the economy back into recession.
"The fiscal cliff would be a constant worry as we approach the deadline, (but) I think we will have further rallies into year-end based on China in particular," said Societe Generale analyst Robin Bhar. Looking ahead, markets will focus on a November US labour report due at the end of the week, which is expected to show a fourth-quarter slowdown is at hand even without the fiscal cliff.
Underpinning metals, the dollar fell to a six-week low versus the euro on signs Germany may be open to a Greek debt writedown. A weak dollar makes dollar-priced metals cheaper for European and other non-US investors. Greece unveiled better-than-expected terms on Monday for a planned buy-back of its debt, a day after German Chancellor Angela Merkel said Greece's creditors might look at writing down more of its debt. Tin closed at $21,855 a tonne from $21,845, while zinc ended at $2,040 versus $2,047.
The latest daily LME data showed 35,925 tonnes of zinc was put on warrant, or registered, in New Orleans, extending the multi-month backlog there and making physical supply harder to come by even as headline stocks remain at record levels. Battery material lead closed at $2,256 a tonne from $2,252; aluminium finished at $2,120 a tonne from $2,094, while stainless-steel ingredient nickel closed at $17,500 from $17,650.
