SINGAPORE: London copper futures edged lower on Thursday after rising the most in a month in the previous session as poor Chinese manufacturing data trimmed some of the optimism spurred by a move by major central banks to aid distressed European lenders.
Copper and zinc in Shanghai surged by their 6 percent daily limit, chasing steep gains in London on Wednesday when copper soared as much as 6.8 percent to a near one-month top of $8,000 a tonne.
China's factory sector shrank in November for the first time in nearly three years, an official purchasing managers' index showed on Thursday, a day after Beijing cut banks' reserve requirement to shore up the economy.
"After the big gains yesterday, this somewhat weaker Chinese number is prompting a little bit of profit taking," Nick Trevethan, senior commodities strategist at Australia and New Zealand Bank, said referring to Thursday's losses on LME.
"Copper is highly geared towards China and the fact that the China data came in a little bit weaker is depressing."
Three-month copper on the London Metal Exchange dropped 0.7 percent to $7,827 a tonne by 0327 GMT. LME zinc fell 2.6 percent to $2,019.
In Shanghai, the most-traded February copper contract on the Shanghai Futures Exchange hit a session high of 58,180 yuan a tonne, before trimming gains to 57,850 yuan.
Shanghai zinc was up 4.4 percent at 15,790 yuan a tonne, after touching its upside limit of 16,080 yuan earlier.
STOP LOSS
Fuelling Wednesday's rally in London was a move by the world's major central banks, including the Federal Reserve and the European Central Bank, to provide cheaper dollar funding to European banks facing a credit crunch.
China said it sees progress in solving the euro zone debt crisis following the concerted intervention by the central banks, and the modest decline in LME copper price on Thursday suggests the upward momentum may be intact if the next Europe summit on Dec. 9 achieves more progress.
"It's all about optimism and reality. The news creates a lot of optimism but then it's up to reality to help us sustain these levels," said Jonathan Barratt, managing director at Commodity Broking Services in Sydney.
"The reality out there remains relatively negative of the tasks ahead. There are still concerns, but at least we have a stop loss."
Just hours before the coordinated action by the central banks, China's central bank cut reserve requirements for commercial lenders for the first time in three years, a policy shift to ease credit strains and bolster an economy running at its weakest pace since 2009.
Analysts said Beijing's bank reserve cut may have a more lasting impact on base metals as it frees up additional liquidity in top commodity importer China.
And coupled with an eventual resolution of the euro zone debt crisis, it may lead the way for a strong recovery in copper prices which fell for a third month in four in November and is down 23 percent from a record $10,190 reached in February.
"I think we're setting ourselves on a better footing for 2012," said Barratt at Commodity Broking Services.
"It's fraught with danger because there are still issues out there that aren't going to be solved overnight. But we're on the road and there is an end in sight."
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