LONDON: Copper fell slightly on Tuesday as the dollar rose, but held close to its highest in nearly two months after manufacturing data in China and the United States suggested recovery in the world's two biggest economies.
Three-month copper on the London Metal Exchange closed at $8,615 a tonne, 0.3 percent down from $8,640 at the close on Monday. It hit a session high of $8,702.75, not far off this year's peak of $8,765 reached in early February.
Volumes were light in a holiday shortened week, with China's financial markets shut until Wednesday, and many markets closed on Friday and Monday for the Easter long weekend.
Copper rose more than 2 percent on Monday, its biggest single-day gain since February.
"For me the big question for the base metals market this week is how significant are those Chinese PMI figures yesterday, and the fact that we have had a whole slew of good manufacturing data suggest that there is almost certainly a pick up that is good news," said Natixis analyst Nic Brown.
The Institute for Supply Management said on Monday its index of US factory activity rose to 53.4 from 52.4, topping economists' expectations. Factory activity also strengthened in leading Asian exporters China, South Korea and Taiwan.
Manufacturing strengthened in the United States and China in March while the euro zone contracted for the eighth straight month, underlining the uneven pace of global economic growth. China accounts for 40 percent of global copper consumption.
Many thought the bullish sentiment would be short-lived, however, as fundamentals do not support a further price increase.
"I think the price surge is only temporary and mainly dictated by funds taking new positions at the beginning of the quarter," said Gianclaudio Torlizzi, analyst at metals consultancy T-Commodity.
"The data has been used a bit as a pretext to buy copper but it wasn't particularly strong and, as the fundamentals remain mixed, I would suggest to short-sell copper on any surge."
Reports from the euro zone, which is teetering on the brink of recession, showed the downturn in the region's smaller nations has spread to core countries Germany and France, according to purchasing managers' indexes (PMIs) for March.
"What dampens the optimism a bit is that inventories at the London Metals Exchange have risen on Monday. However, we think the bigger picture currently matters more. Prices could gain a bit further in the days ahead," Credit Suisse said in a research note.
INVENTORIES RETREAT
Copper stocks in LME-monitored warehouses have started rising again after a steady fall since October, partly indicating slower demand. Data on Tuesday showed they climbed 3,100 tonnes to 260,650 tonnes.
A stronger dollar against a basket of currencies knocked some of the support from metals prices. A stronger dollar makes dollar-denominated commodities more expensive for consumers using other currencies.
The market awaited direction from minutes from the US Federal Open Market Committee meeting of March 13 due later, and from Wednesday's European Central Bank policy meeting.
In fundamental news, Indonesia, a major global producer of raw materials, is planning to impose a 25 percent export tax on coal and base metals this year, an industry ministry official said on Tuesday, with the charge rising to 50 percent in 2013.
"This is one of many examples around the world where mining companies are making swillions, and everybody else involved wants a slice of the pie -- whether it is unions wanting higher wages or government wanting a bigger take of what is a national resource," said BNP Paribas metals analyst Stephen Briggs.
"It is not irrational," he added.
Indonesia had outlined its plans last year, and the announcement had little impact on the price of tin, one of the country's big exports.
Benchmark tin on the LME ended at $23,025 from $23,250 at Monday's close and zinc at $2,020 from $2,008. Lead closed at $2,070 from $2,060, aluminium at $2,125 from $2,130, while nickel was bid at $18,450 from $18,225.
"The recent sell off in nickel was overdone and we think that fundamentals justify a recovery to around $20,000," Torlizzi said.
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