MELBOURNE: London copper rose to the highest in two weeks on Wednesday as a falling dollar spurred demand for commodities given fading prospects of a US interest rate hike in September.
US service sector activity slowed to a 6-1/2-year low in August amid sharp drops in production and orders, pointing to slowing economic growth that further diminished prospects for an interest rate hike from the Federal Reserve this month.
A weaker dollar makes commodities more affordable for buyers paying with other currencies. But analysts did not expect the dollar effect on demand to last, given a flood of new mine supply.
"We reiterate our second half 2016 view that copper and... aluminium are expected to move lower on a combination of slowing demand growth and rising supply, and zinc and nickel set to rise on idiosyncratic supply factors," Goldman Sachs said in a note.
London Metal Exchange copper rose by 1.3 percent to $4,679 a tonne by 0316 GMT, after closing little changed in the previous session. Prices topped out at $4,683, the highest since Aug. 24, and have marked out a floor above $4,600, a nine-week low hit last week.
Ahead of options expiry later in the session, positioning had accelerated copper's short-covering rally this morning, a broker said.
"It's all about expiry today," said the broker, adding that key options strike prices were at the $4,600 and $4,700 a tonne levels.
Shanghai Futures Exchange copper climbed 0.9 percent to 36,850 yuan ($5,525) a tonne.
ShFE nickel was resilient in the face of steep declines in other materials used by China's steel sector after steel prices plunged, prompting downside pressure.
Elsewhere, strong exports and household demand drove economic expansion in the euro zone in the second quarter, but growth slowed from previous quarters on weakening inventories and investment, EU data showed.
Set to support metals prices in the medium term, China will step up proactive fiscal policy efforts now that commodity prices are relatively low, the State Council said.
Metals prices are particularly sensitive to China's credit cycle.
London-listed Antofagasta Plc's Antucoya copper mine reached its full monthly production capacity of 7,000 tonnes of copper in August, chief executive Ivan Arriagada said at a mining conference on Tuesday.
The total net-long position of funds trading copper on the London Metal Exchange fell to 18,033 lots last Friday from a net-long position of 27,026 lots the previous week, the LME's Commitments of Traders Report (COTR) showed on Tuesday.
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