BASE METALS: Copper Ends Near Steady, Boosted By Weak Dollar

NEW YORK, Feb 08, 2011 (Dow Jones Commodities News via Comtex) --Copper prices ended Tuesday unchanged as a weaker dollar counterbalanced the damping impact of China's central bank raising its benchmark interest rates.

The most actively traded contract, for March delivery, settled at $4.5740 per pound, down 0.1 cents, on the Comex division of the New York Mercantile Exchange. The thinly traded February-delivery contract settled nearly unchanged at $4.5680 per pound, up 0.05 cents.

Copper prices rallied alongside the euro in late-morning trade. The euro was recently at $1.3648, up from $1.3583 late Monday.

"As copper has been heading up, the dollar has been heading down, and traders watch those things," said Larry Young, president at Covenant Trading LLC.

Dollar-denominated copper futures attract buyers who use foreign currencies when the dollar weakens, as the contracts appear cheaper.

Earlier in the day, copper prices slipped about 0.6% after China unveiled its rate increases. The People's Bank of China raised its benchmark lending and deposit rates by 25 basis points. Tuesday's decision is just the latest step in China's fight to curb inflation and cool its red-hot economic growth, but some market watchers worry an economic slowdown will crimp the world's top copper consumer's demand for the metal.

Copper is widely used for electrical wiring and tubing in manufacturing and construction, and has seen growing demand from China over the past decade.

Tuesday's decision "appears to be a pre-emptive rate rise" ahead of Chinese consumer price inflation data, due out next week, Leon Westgate, base metals strategist at Standard Bank, said in a note to clients.

"If inflation does surge, China may well need to embark on much more aggressive tightening measures over the coming weeks and months," Westgate said.

Some participants, however, dismissed the likelihood of the rate increase having a lasting impact on China's copper demand.

"The rate hikes are not that onerous at this point, they're not going to slowdown manufacturing," said Frank Lesh, broker and futures analyst at FuturePath Trading. "They want to tap on the breaks a little bit, they don't want to stop."

The timing of China's interest hike, which is effective Wednesday, coincides with the end of the Lunar New Year holiday and the reopening of the Shanghai Futures Exchanges, where copper is also traded.

Copper prices are up around 0.7% since SHFE closed on Feb. 3, but catching up with global gains may take some time. While copper traders will jockey to purchase cheap copper on the Shanghai market, the SHFE suspends trading in a contract if prices rise or fall by more than 3% from the prior settlement price.

"Chinese copper buyers who have access to the (London Metal Exchange) markets are likely to sell on the LME and buy on the SHFE to exploit the price difference that's occurred since SHFE been closed on holiday," Justin Lennon, base metals analyst at Mitsui Bussan Commodities in New York.