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Copper bounces off 20-mth low, but market nervous

LONDON - Copper bounced from a 20-month low on Tuesday along with equity markets, while wider economic fears dogged investors after banking shares took another battering.

A hefty rise of 9,600 tonnes in copper inventories earlier pushed the metal, used widely in construction, to a fresh 20-month low of $5,480 per tonne.

At the midsession, three-month copper MCU3 on the London Metal Exchange was at $5,620/5,630 per tonne versus $5,560 a tonne on Monday, when it tumbled 7.5 percent.

After a fall in early trade, European shares bounced with Europe's FTSEurofirst 300 index by more than 1 percent while U.S. stock futures pointed to slight recovery at the open.

“When you look at base metals, they are taking their lead from what's happening in the equity markets,” said Macquarie analyst Adam Rowley.

“Clearly, there are ongoing concerns about how deep and prolonged the downturn is going to be and concerns about the impact it's going to have on demand across the board.”

Stocks of copper in LME registered warehouses rose by 9,600 tonnes to 208,350 tonnes -- their highest since February 2007, with between 80-90 percent of them held by one entity.

“Market participants are usually aware of the stocks coming in before the actual delivery,” an LME trader said, explaining why the impact from the inventory rise was brief. “The market is so much oversold and that's why we are bouncing,” he said.

Copper lost 7.5 percent on Monday when it hit its lowest since February 2007, extending a 15 percent fall last week as the global credit crisis sent markets crashing.

“China, returning from a week-long holiday yesterday, showed no inclination to pick up “cheap” LME copper,” said UBS in a note. “If China is shunning copper at these prices, there is no signal for the shorts (bets on lower prices) to cover.”

China is the world's largest consumer of copper, using about 25 percent of total global production.

Consumption falling

Aluminium rose $2,272/2,275 per tonne from $2,255 on Monday when it hit $2,235, its lowest level since early 2006.

Stocks of the metal in LME warehouse at more than 1.38 million are at their highest since February 2004.

“We continue to see weakness in U.S. consumption. European consumption is faltering rapidly and is expected to get worse,” Barclays Capital said in a note.

“Worryingly Chinese consumption is also showing signs of slowing and we now believe it's increasingly unlikely that consumers will come back and restock through (the second half of 2008) after aggressive destocking in (the first half).”

China is the world's largest producer and consumer of aluminium used in transport, packaging and power.

Stainless steel raw material nickel was trading at $14,200 from $14,300 on Monday.

“In this kind of environment, prices are starting to price in reasonable surpluses coming through next year. The focus of the market is, how far into the cost curve down we have to go before we start to find the floor?”

Lead climbed to $1,668/1,669 per tonne from Monday's last bid at $1,630, tin was at $16,150 versus $16,200 and zinc at $1,535 from $1,549.