Nov 30 (Bloomberg) --  Copper in London declined, set for the first monthly drop in five, on speculation that China, the world’s largest consumer, may raise interest rates or increase the required reserve ratio for banks again to curb inflation.

Copper for three-month delivery dropped as much as 0.5 percent to $8,177 a metric ton on the London Metal Exchange and traded at $8,185 at 12:05 p.m. Shanghai time, heading for a 0.2 percent November loss. Copper for March delivery on the Comex in New York fell 1 percent to $3.73 a pound.

"Rumors of another China rate hike hit stocks first and then weighed down commodities,” Wang Ning, an analyst at Xiangyu Futures Co., said by phone from Shanghai.

China’s stocks fell, sending the benchmark Shanghai Composite Index toward its first monthly drop since June. It closed the morning session 3.1 percent lower at 2778.866.

China may see inflation quicken again this month, after rising food costs drove prices higher in October, making it "almost certain” that inflation will top 3 percent for the full year, Sheng Songcheng, former head of the central bank’s Shenyang branch, wrote in a commentary in the official Financial News daily today.

The central bank should clearly state that it’s shifting to a "prudent” monetary policy and there is still room for further increases in reserve requirement ratios for banks, he said in the commentary. Sheng is head of the central bank headquarters’ statistics and analysis department, according to a bank official, declining to be named due to agency rules.

Copper for March delivery in Shanghai declined 1 percent to 61,830 yuan ($9,273) a ton as of the midday break, set for the first drop in five months.

China Demand

In the Chinese physical market, end-user demand has declined because spot inventories remain plentiful, while the discount at which imported metal trades over futures continues to widen, brokerage MF Global Holdings Ltd. said in a report yesterday.

Although copper’s fundamental backdrop remains quite bullish, "we suspect that prices have likely done too much too quickly, and would not be surprised to see a retest of the recent lows going into yearend,” senior commodity analyst Edward Meir wrote in the report.

Copper will exceed $11,000 a ton by 2013 because of supply shortages, researcher GFMS Ltd. said in a note yesterday. The market may move back into surplus in the first half of 2011 as economies slow, before returning to a shortage, the note said.

Aluminum in London rose 0.2 percent to $2,274 a ton, zinc was little changed at $2,075 a ton and lead added 0.3 percent to $2,195 a ton. Nickel was unchanged at $22,425 a ton, while tin gained 0.3 percent to $23,975 a ton.