SINGAPORE: London copper futures edged higher on Wednesday, spurred by hopes that more aggressive measures to end the euro zone debt crisis will be reached at this week's EU summit, but thin volumes suggest the optimism is not widespread.
The euro zone debt crisis has been the biggest pain for copper and other commodities this year because it clouded the outlook for global demand. So investors have huge expectations about Friday's summit which may be Europe's last chance to resolve a crippling two-year-old sovereign debt crisis.
"There is a lot riding on the outcome of this week's upcoming EU meeting," INTL FCStone analyst Edward Meir said in a note.
"In our view, for the markets to advance further from here, investors will not only need to see a set of robust fiscal principles introduced, but ones that could be easily measured, along with credible repercussions imposed on members that stray from these provisions."
US Treasury Secretary Timothy Geithner is meeting with French President Nicolas Sarkozy in Paris on Wednesday to press for decisive steps to resolve the euro zone debt crisis.
Geithner has thrown his support behind France and Germany's plan to change the EU treaty to impose mandatory penalties on euro zone states that exceed deficit targets in a bid to restore market trust. But Geithner said the European Central Bank had to play a major role.
Meir at INTL FCStone agrees that the ECB, which is expected to announce a rate cut on Thursday and offer liquidity to support banks, should have a key role in the solution.
"If they don't, we could see much of the recent gains in a number of markets get rolled back, as markets will not place too much faith in political proclamations alone," said Meir.
Standard & Poor's said a plan by France and Germany to increase fiscal integration in Europe is "promising" and could help avoid a mass debt downgrade of euro zone countries, a day after warning that it could downgrade nearly all euro zone members, including top-rated countries such as Germany and France, if leaders fail to reach an agreement on how to solve the region's debt crisis.
Three-month copper on the London Metal Exchange rose 0.6 percent to $7,883.50 a tonne by 0345 GMT, after dropping more than 1 percent on Tuesday. Volume on LME Select was a paltry 964 lots.
Despite the gain, LME copper is still down 18 percent this year, and is headed for its first annual decline since 2008 when a financial crisis tripped the global economy, with demand from top copper consumer China also far from aggressive.
A Chinese commerce ministry official said the world's No. 2 economy will face a "severe export situation" in 2012 and will try to export more to emerging markets.
A slowing global economy may prod China to wrap up a three-year plan to build stockpiles of base metals with prices rising and Beijing still fighting inflation, industry sources and analysts in China said.
The most-traded February copper contract on the Shanghai Futures Exchange gained 0.6 percent to 58,000 yuan a tonne.
Apart from the EU summit, investors were also looking to a slew of China data on Friday for trading cues, said a metals trader in Shanghai.
China is scheduled to release inflation, industrial output and commodity production data, among others on Friday.
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