Aug 09, 2011 (Dow Jones) -- --Comex Sep copper up 0.85 cent, or 0.2%, at $3.9700/lb

--Equity gains likely to dictate copper price direction

--Lower prices may spur buying from fast-growing economies

By Tatyana Shumsky
   Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)--Copper futures locked in modest gains Tuesday, ending trade below $4 as investors were cautious to reenter the market in the wake of recent declines.

The most actively traded contract, for September delivery, settled 0.85 cent, or 0.2%, higher at $3.9700 a pound on the Comex division of the New York Mercantile Exchange. The contract had touched highs of $4.0275, but remains near a two-month low.

Thinly traded August-delivery copper settled up 0.95 cent, or 0.2%, at $3.9670 a pound.

Copper prices edged higher, partially shaking off Monday's 3.8% loss, as stocks and other commodities recovered in part from a volatile day. The Standard & Poor's 500 index was recently up 22.72 points while sugar rallied 2% and coffee futures posted mild gains.

"Even though historically copper is a leading indicator, in the short term copper will be a lagging indicator," Adam Klopfenstein, a senior market strategist with MF Global.

Copper is widely used in everything from iPhones and cars to household plumbing, and demand for such goods tends to drop off when economic activity slows.

Investors had rushed away from stocks and commodities Monday after S&P cut its credit rating on U.S. Treasurys by one notch to double-A-plus after the market closed Friday. Market participants fear the lower credit rating will raise the cost of borrowing for the U.S. government and slow economic growth.

"Copper is more at the mercy of the outside markets like equities and the world-wide hopes that we're not slipping into a recession will be bullish for copper," Klopfenstein said.

Moreover, copper's smaller price tag is likely to attract attention from international buyers, including top consumer China. China's focus on cooling its economy through fiscal tightening has crimped its copper purchases in recent months, as metal prices marched higher.

"These lower prices are a good thing. Many [fast-growing] countries are having to take actions to cool their economies," said Stephen Platt, analyst with Archer Financial.

Copper settlements (ranges include electronic and pit trading):
Aug $3.9670; up 0.95 cent; Range $3.9305-$4.0085
Sep $3.9700; up 0.85 cent; Range $3.8180-$4.0275