Copper Futures Rebound from Biggest Drop since July after Dollar Declines

Oct 21 (Bloomberg) --  Copper prices rose, rebounding from the biggest drop in three months, as the dollar resumed a slide, enhancing the appeal of commodities as alternative investments.

The greenback fell as much as 1.4 percent against a basket of major currencies. Copper in New York slid 2.5 percent yesterday, the most since July 16, after China, the world’s biggest metal consumer, raised interest rates.

"It looks like the knee-jerk reaction to the China rate hike is over, and the market has had time to absorb the implications,” said Alex Heath, the head of industrial-metal trading at Royal Bank of Canada Europe Ltd. in London. "The key again will be the dollar.”

Copper futures for December delivery rose 3.6 cents, or 1 percent, to settle at $3.7935 a pound at 1:20 p.m. on the Comex in New York. The metal has gained 13 percent in 2010.

Yesterday, China unexpectedly raised borrowing costs for the first time since 2007, lifting the benchmark one-year lending rate and the deposit rate by 0.25 percentage point.

The increase "is being seen as a vote of confidence in the resilience of the Chinese economy and should not derail it or impact levels of base-metal consumption for the longer term,” Heath said.

Copper may reach a record in 2011 on tightness in mine supply, analysts at Bank of America Merrill Lynch said today in a report.

"Weak growth in copper mine output remains the base case for next year, which is one of the reasons we expect prices to trade well above pre-recession record highs,” Bank of America said.

Copper for delivery in three months rose $80, or 1 percent, to $8,340 ($3.79 a pound) a metric ton on the London Metal Exchange.

The price touched $8,940 on July 2, 2008, the highest ever.

Aluminum, lead, nickel, tin and zinc also gained.