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The most actively traded contract, for September delivery, was recently down 8.40 cents, or 1.9%, at $4.3955 a pound on the Comex division of the New York Mercantile Exchange. The contract had touched a low of $4.3795.
Thinly traded August-delivery copper was down 9.40 cents, or 2.1%, at $4.3800 a pound.
The U.S. manufacturing sector grew at a much slower pace in July than the prior month, according to data by the Institute for Supply Management. The ISM's manufacturing purchasing managers index fell to 50.9 in July from 55.3 in June, the lowest reading since July 2009. Economists had expected the index to slip to 54.6.
"The manufacturing data still shows expansion, but a very slow pace. You usually get into the summer doldrums right about now," said Patricia Mohr, vice president at Scotiabank.
Copper prices slumped on the report, as the red metal is widely used in manufacturing everything from iPhones and air conditioners to cars. Traders consider the data an indicator of future demand.
Earlier in the day, optimism over the U.S. debt ceiling deal had kept copper futures buoyed. The U.S. Democratic and Republican party leaders reached an agreement late Sunday to increase the national borrowing limit and cut spending by about $2.4 trillion over 10 years.
The accord, which comes after weeks of wrangling that raised concerns the world's largest economy may default on its debts, must pass both the House and Senate and be signed into law by Tuesday to avert a U.S. default.
Copper prices had pared initial gains as traders took a closer look at the agreement. Analysts at Barclays Capital have called the deal a "band-aid approach" to government finances and said it doesn't preclude a U.S. credit downgrade. Two credit-rating agencies, Standard & Poor's and Moody's, have put America's AAA credit rating on review amid the debt limit crisis.
"Our first impression is that the agreement by itself is unlikely to be sufficient to cause S&P to remove the U.S. from being on ratings watch for possible downgrade," the bank said.
Copper's gains were also curbed by a stronger dollar, which gained ground on the euro in the wake of the U.S. debt announcement. Copper futures are denominated in dollars and appear more expensive to traders using foreign currencies when the greenback rallies.
The euro was recently at $1.4208, down from $1.4391 late Friday in New York.
Production disruptions at the world's largest copper mine remain a source of support for copper prices. BHP Billiton Ltd.'s (BHP) Escondida mine in northern Chile has been idled for 10 days by a worker strike that forced the operator to invoke "force majeure" last week, releasing it from obligations to make deliveries. Copper mine production has struggled to keep up with growing demand for the red metal in recent years, and many analysts have forecast a slight shortfall in supply for this year.
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