SINGAPORE, July 20 -- Copper rose more than 1 percent on Tuesday, defying weak U.S. economic data and as firmer Chinese equities pushed investors to pick up the metal after it touched two-week lows in the previous session.
Shanghai's benchmark stock index .SSEC jumped 1.6 percent to break the 2,500 level, defying a cautious tone in other equity markets in Asia after technology leaders International Business Machines (IBM.N: Quote) and Texas Instruments (TXN.N: Quote) both reported disappointing quarterly results.
U.S. home-builder sentiment fell more than expected in July to the lowest in more than a year, and U.S. housing starts, due later on Tuesday, is forecast to show a drop in June after reaching a five-month low in June.
"The U.S. economic recovery is certainly uneven and moderately paced and that's being reflected in the data for housing and construction," said David Moore, commodity strategist at Commonwealth Bank of Australia.
"But my thinking is that these data are being increasingly factored into prices and there's actually some evidence of resilience in some of the base metals."
Three-month copper on the London Metal Exchange CMCU3 gained $67 to $6,575 a tonne at 0326 GMT. The contract fell as low as $6,470 on Monday, its weakest since July 6.
Copper, down about 11 percent this year and off around 20 percent from the 2010 peak above $8,000 a tonne touched in April, has been stuck within a broad $6,000 to $7,000 trading band in recent months and in the absence of compelling leads is likely to remain trapped in that range.
"Although the growth story worldwide seems to be transitioning to a slower pace, we reiterate our view that last quarter's price correction has likely discounted much of this deceleration," MF Global analyst Edward Meir said in a note.
"Another factor that should temper the bearish view, is that copper stocks continue to decline both on the LME and in Shanghai, a further indication that demand remains steady."
While the spread between the cash copper versus the three-month price MCU0-3 is currently at its tightest since last September, analysts say it is unlikely to go into backwardation.
"I don't think we'd see backwardation. China's copper demand has held up well so far, and even the price itself is an indication of that. At $6,500, it's well above the cash cost which is around $3,000 at the high end," said Moore at Commonwealth Bank.
Shanghai's benchmark third month copper SCFc3 jumped 570 yuan to 52,890 yuan a tonne.
But zinc was the star performer with LME zinc CMZN3 climbing 2.2 percent to $1,848 a tonne and Shanghai zinc SZNc3 up 1.8 percent to 15,435 yuan.
"We're seeing arbitrage buying in zinc and also volumes are big. And the Shanghai stock market is up so that's also helping," said a metals trader in Shanghai.