LONDON: Copper rose to its highest level in more than a month on Thursday, boosted by the euro's strength against the dollar after a Spanish bond auction drew strong demand, easing some immediate concerns about peripheral euro zone debt.
Benchmark copper on the London Metal Exchange traded at $7,960 a tonne in official rings, up more than 2 percent from a close of $7,785 on Wednesday.
The metal used in power and construction earlier hit its highest level since Dec. 5 at $7,989 to break above its 100-day moving average.
Other metals in the complex also touched multi-month highs. Nickel hit a 2-1/2 month high, tin rose to its highest level in 1-1/2 months, while aluminium and zinc hit one-month highs.
"Previously there was a very bearish economic view being priced in so even a small improvement is having a very positive effect on prices especially given the market was generally positioned on the short side," said Gayle Berry, analyst at Barclays Capital.
"But we're not out of the woods yet. Over the next couple of months, the markets are going to remain very sensitive to the big picture and I don't think this is the beginning of a straight line higher."
Spain's Treasury raised 10 billion euros from the auction of three bonds in the primary market, doubling a target of up to 5 billion euros, in an auction seen as a test for sentiment towards peripheral euro zone debt.
Italy also fared well, paying less than half what it did a month ago to sell one-year bills at its first auction of the year.
The strong demand helped the euro strengthen further against the dollar, giving a boost to metals prices as a weak dollar makes commodities priced in the US unit cheaper for holders of other currencies.
The European Central Bank (ECB) kept rates unchanged at 1.0 percent, with the focus now turning to a news conference with ECB President Mario Draghi starting at 1330 GMT for clues on whether the central bank could steer rates into unchartered territory in the coming months. Most analysts expect a cut in February or March.
Last year copper posted its first annual decline since 2008, losing a quarter of its value as the euro zone debt crisis and growth uncertainty soured the demand outlook for industrial metals.
Volume at the London Metal Exchange, the target of potential takeover bids, jumped 22 percent in 2011 to a new record of 146.6 million lots, the exchange said on Thursday.
CHINESE INFLATION FALLS
China's annual inflation fell to 4.1 percent in December, the lowest level in 15 months. If easier monetary policy seeps into end-user markets, it may help support prices for copper as buyers will have more liquidity.
Traders said an easing in Chinese inflation may help spur some domestic buying after the Lunar New Year break, as the government is now expected to focus less on putting a brake on prices and more on stimulus measures.
Looking at inventories, data showed copper stocks in LME-registered warehouses fell by 6,000 tonnes, with 4,775 tonnes delivered out of warehouses in Busan, South Korea. Total cancelled warrants for copper stood at 13.74 percent.
"Inventory levels at the London Metal Exchange are falling and suggest robust consumption," Credit Suisse said in a note.
"Moreover, cancelled warrants, i.e. inventories already earmarked for delivery are rising as well, which suggests that further outflows might be ahead. We take this as a positive sign."
In other metals, three-month nickel was untraded in rings, but bid at $19,595 a tonne from a close of $19,495 on Wednesday. It earlier rose to its highest level since late October at $19,709.
Tin traded at $21,100 a tonne, its highest level since late November, from $20,475.
Zinc was untraded in rings, but bid at $1,949 from $1,936, earlier rising to a one-month high at $1,958. Aluminium rose to $2,189 from Wednesday's close of $2,165 a tonne, having earlier hit a one-month high at $2,197 a tonne.
Most of China's large aluminium smelters have no plans to cut production like the world's top global producers of the metal, with firm domestic prices encouraging steady output in the first quarter of 2012, smelter sources and analysts said.
Lead was at $2,002 a tonne from Wednesday's close of $1,990.
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