Copper rose to its highest in more than three months on Tuesday on data that offered hope for the battered US housing market, a weaker dollar and prospects of firm China demand, which helped offset investor anxiety over debt crises in the United States and Europe.
Three-month copper on the London Metal Exchange closed at $9,840 a tonne, compared with Monday's close of $9,694 a tonne. The metal used in power and construction earlier hit $9,873 a tonne, its highest since around mid-April.
"We've seen quite a rebound in euro/dollar and equity markets ... It seems it is very much markets reconsidering that the debt crisis is not something that is going to weigh too much on global growth," Danske Bank analyst Christin Tuxen said.
"Base metals are rebounding on this, maybe reconsidering that the situation at least in Asia is not that bad, and indeed in our view we're likely to see Chinese demand for raw materials bounce back quite significantly within the next few months."
The dollar dropped versus a basket of currencies, while there was no resolution in sight for debt problems on either side of the Atlantic. The euro extended its gains versus the dollar after the US housing data. A weaker dollar makes commodities more affordable for holders of other currencies.
"There is a recovery unfolding; it's just glacially slow and requires incredible scrutiny to discern it," said Richard DeKaser, an economist at Parthenon Group in Boston. "New homes are more scarce than they have ever been."
Investors are optimistic that demand from top copper consumer China will remain strong in the second half of the year given little sign that its monetary tightening efforts had sharply slowed the world's No. 2 economy, which grew a faster-than-forecast 9.5 percent in the second quarter.
Market participants also expect a deficit in global copper supply this year, with shortage risks increased by weather and labour unrest hitting major mines in Chile and Indonesia.
Copper inventories at LME warehouses rose 4,450 tonnes to 467,400 tonnes, latest data showed. "There is still much uncertainty in Europe, and the fact that copper inventories continue to rise has many still questioning whether the rally of the past month in the red metal has been too much too soon," RBC Capital Markets said in a note.
Lead and zinc also hit their highest since mid-April. Zinc, used in galvanising, closed at $2,490 from $2,431 a tonne, having earlier hit $2,486. Battery material lead was $2,770 from $2,730 a tonne, having hit $2,779 a tonne. Aluminium was $2,550 a tonne from $2,495. Nickel, untraded at the close, was bid at $24,100 a tonne from $23,825.
Western Areas, Australia's third-largest nickel miner, is forecasting fiscal 2011/12 nickel production of 25,000-27,000 tonnes, versus a bumper 32,222 tonnes in the previous year, a company executive said. Tin closed at $27,890 from $27,350 a tonne.