LME copper up on hopes of China buying Italian bonds

Copper was dragged to a one-month low in the previous session by fears over Europe's debt problems and global growth. But the three-month contract on the London Metal Exchange rose to $8,826.25 a tonne by 0332 GMT, bouncing off Monday's low of $8,620, its lowest level since August 11.

Italy has asked China to make "significant" purchases of Italian debt, the Financial Times reported on its website on Monday, saying that Lou Jiwei, chairman of China Investment Corp, headed a delegation to Rome last week.

Hopes of China buying Italian bonds allayed some worries over Italy's stuttering economy at a time when markets are getting increasingly nervous about a possible Greek debt default.

The news helped US stocks staged a late-day rally and the euro rose on Monday.

"If China supports euro zone countries by buying up their bonds, it will lend support to the euro and cause the dollar to weaken, which will be good for commodities as a whole," said Great Wall Futures analyst Li Rong.

The most-active November copper contract on the Shanghai Futures Exchange dropped 2.1 percent to 66,180 yuan per tonne by its midday close, catching up with London's losses after Monday's mid-autumn festival holiday.

"Shanghai copper's weakness today tracks the price decline in London over the weekend and yesterday. A strong dollar will add more pressure on Shanghai copper from current levels, but I don't see it falling by too much since prices in London and Comex are steady," Li added.

The dollar eased broadly on Tuesday, but the US currency has risen almost 4 percent this month.

Elsewhere in the euro zone, fears of a Greek debt default continued to weigh on sentiment, potentially limiting LME copper's gains on Tuesday.

US Treasury Secretary Timothy Geithner makes a one-day trip to Poland this week for an unprecedented meeting with euro zone finance ministers as growing fears of a potential Greek debt default rip into Europe's banking sector.

Greece's ability to meet its deficit goals is in doubt as workers there threatened to sabotage a new property tax decided by the government, ignoring warnings that Athens will run out of cash next month.

There are also worries that weak economies abroad will hit China's economic growth, as underlined by a fall in the new export orders subindex of the official PMI, which fell to 48.3 in August.

China is the world's top consumer of copper and a major user of iron ore and other metals.

Copyright Reuters, 2011