NEW YORK/LONDON: Copper edged higher on Friday in a muted response to better-than-forecast U.S. employment data that offered further evidence that a recovery in the world's largest economy was on track.
The economically-sensitive metal barely budged on the week as investors were caught between an upbeat stream of U.S. data and lingering concerns about debt default risks and funding stress in the euro zone.
Copper reversed earlier losses and tip-toed into positive territory, slowed by a rallying dollar from data that showed U.S. nonfarm payrolls rose 200,000 in December and the unemployment rate dropped to a near three-year low of 8.5 percent.
"It was in the market," Frank Lesh, broker and futures analyst with Future Path Trading in Chicago, said of the jobs figure.
"It continues to show that the U.S. economy is on the rebound, maybe not as strong as we want, but rebounding nonetheless.
"But the big question is still about the banks and the health of the worldwide banking system."
London Metals Exchange (LME) benchmark copper rose $40 to end at $7,580 a tonne.
In New York, the key March COMEX contract settled with a 0.85-cent gain to $3.4350 per lb, after moving between $3.3935 and $3.4650.
Despite the subdued price action, open interest has been on the rise this week, hitting its highest level since late November.
Copper's sluggish reaction to the employment data was mostly tied to the dollar. The greenback surged to a 16-month high against the euro, reflecting a growing divergence between the euro zone and U.S. economies, with the euro zone seen heading toward recession.
"This is a positive dollar strength story (today) because ... when the dollar strengthens on a relief like this, it is not going to impact metals very negatively," Meir said.
But with European debt woes and funding concerns still in the spotlight, any price gains could be short-lived, analysts said.
"I doubt, though, we will see a sustained price recovery as the funding stress is still there, and this sovereign debt crisis will still be the overarching theme in the near-term," said Credit Suisse analyst Stefan Graber.
The market is seen staying on edge and the euro under pressure ahead of Italian and Spanish government bond sales next week, viewed as the year's first big fund-raising tests for struggling euro zone countries.
News that commercial banks still preferred to deposit funds at the European Central Bank rather than receive higher rates from lending to each other was also weighing on market sentiment and on prices of assets deemed as riskier, such as metals.
ALUMINIUM CUTS
Fundamentals for copper, however, remained positive and supply tightness was highlighted by news that workers at Freeport McMoRan Copper and Gold Inc's mine in Indonesia will stop returning to work on Saturday if they are not paid salaries owed to them during a recent three-month strike.
Among other metals, aluminium ended up $33 at $2,069 a tonne, supported by news of production cuts.
Alcoa Inc, the largest U.S. producer of aluminum, said it will slash its global smelting capacity by 12 percent, becoming the first producer to take direct action to cut costs amid a steep drop in metal prices.
"With spot aluminium at $0.91/lb we estimate about 30 percent of global primary smelting capacity is loss making, therefore additional industry smelter closures look likely," said Liberum Capital in a research note.
"A tentative U.S. recovery may boost demand in the near term, but a sustained price spike looks unlikely to us in the foreseeable future due to oversupply."
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