Copper rallies as risk appetite returns, dollar dips

Copper prices rose more than 1 per cent on Thursday as gains in global equities and a weaker dollar re-ignited risk appetite and overshadowed recent worries over the US economic recovery.

Benchmark copper for three-months delivery on the London Metal Exchange traded at $7,250 a tonne at 0945 GMT from a close of $7,165 on Wednesday. Earlier, the metal used in power and construction hit a near three-month high of $7,260.75.

"The last two to three weeks we've moved back into a risk on mode. There are some fundamentals that are supportive, in most cases LME stocks continue to decline but it's more a risk on thing," said BNP Paribas analyst Stephen Briggs.

He added: "On the other hand most signals from the economy are not very encouraging, US figures almost without exception have been poor in the last few weeks but risk on appetite means bad news is ignored."

The dollar hit an 11-week low versus the euro, making dollar-priced metals cheaper for European investors, while European and Asian shares, seen by some as a proxy for economic growth, turned higher.

On the downside, data out yesterday showed US durable goods orders surprisingly fell for a second straight month in June, highlighting the patchy nature of the U.S. economic recovery.

In addition, the Federal Reserve said the US economy kept growing overall in recent weeks, but unevenly and it actually slowed in a few regions.

China, the biggest consumer of industrial metals, said the economy was expected to slow in the second half, but that a double-dip would be unlikely, while European banks reported largely positive results from stress tests.

"There is still pressure. The current rally is being pushed by speculative money, not fundamentals, as tensions on the macro front were temporarily relieved, such as the case of Europe's debt crisis," said Yang Jun, an analyst at China Futures Co.

Data out earlier showed euro zone economic sentiment improved more than expected in July, buoyed by strong figures from Germany, and pointing to continued economic recovery in the third quarter.

In industry news, Nissan Motor Co and Hyundai Motor Co reported forecast-beating quarterly profits but gave weak outlooks, citing increasingly murky prospects for demand.

Possible weakness in auto industry sales could affect all base metals, most notably zinc and aluminium, but for now the pervading risk appetite is supporting most metals, analysts said.

Aluminium, used in transport and packaging, was at $2,105 a tonne from $2,068, having hit a two and a half month high of $2,106.25, while galvanising metal zinc was at $1,996 from $1,955, having hit a two and a half month high of $2,002.75.

Soldering metal tin, which has outperformed most LME metals on growing supply constraints, was at $19,600 from $19,525, while stainless steel ingredient nickel was at $20,637 from $20,405.

Battery material lead was at $2,034.75 from $2,018, having hit a two and a half month high of $2,042.