Copper slips on euro zone debt uncertainty

LONDON: Copper fell on Thursday as worries about the outcome of a crucial German vote to beef up the euro zone's rescue fund and uncertainty about whether Greece could avoid a debt default prompted caution among investors.

Benchmark copper on the London Metal Exchange fell to $7,135 a tonne by 0914 GMT, down from $7,250 a tonne at the close on Wednesday.

The metal used in power and construction had earlier slid more than 6 percent to $6,821 a tonne, hovering near a 14-month low of $6,800 hit earlier this week when panic selling on fears of a Greek default and the euro zone crisis accelerated.

German Chancellor Angela Merkel worked to defuse a revolt within her government before the vote to enhance the powers of Europe's bailout fund on Thursday, while international inspectors are set to return to Greece to decide whether Athens has done enough to secure a new batch of aid vital to avoid bankruptcy.

"There are concerns about the weakness in Europe and how that will impact growth in emerging markets. Market sentiment with regards to European growth over the next six months or so have turned very bearish and the concerns are about the implications on demand for China's exports," said Gayle Berry, analyst at Barclays Capital.

Further falls in the metal were capped by a weak dollar, which fell against a basket of currencies. A weaker dollar makes commodities priced in the US unit more expensive for holders of other currencies. MONTHLY AND QUARTERLY LOSSES

Trading in base metals markets was expected to be choppy until the end of the week which marks the end of the month and quarter, with an element of position squaring and "window dressing" -- an attempt to make investments look better -- to be expected.

Copper is down more than 22 percent so far this month, on track to post its biggest monthly fall since October 2008 and its steepest quarterly drop since the fourth quarter of 2008.

"The most likely direction in the short-term is probably lower given sentiment is still incredibly negative and lots of the question markets remain unanswered, in particular how the European sovereign debt situation will play out," Berry said.

Aluminium fell to $2,232 a tonne from Wednesday's close of $2,235 a tonne.

"Consumer interest continues to linger in the lower $2,200s and scale down where we expect fresh activity to come in," Citi analysts said in a note.

Aluminium stocks in LME-monitored warehouses showed a drop of 3,950 tonnes, according to data from the LME.

Zinc slipped to $1,910 from $1,942, lead traded at $1,983 from $2,008. Tin was at $20,750 from $20,550 while nickel traded at $$18,570 from $18,505.

China's southern and central regions, which depend heavily on hydropower, will face a power supply squeeze this winter due to strong demand growth and low water storage, the National Energy Administration said on Thursday.

Power rationing has cut into industrial activities such as metal smelting in some regions and China's power consumption grew at the slowest pace this year in August, with the consumption increase by heavy industry sinking to the single-digits for the first time since February.

Copyright Reuters, 2011