Europe Worries, Strong Dollar Drag Copper Lower

Jan 04, 2012 NEW YORK (Dow Jones)--Copper slumped on Wednesday as investors cashed out to profit from the metal's recent rise on the latest set of worries about the stability of the euro zone's financial system.

The euro slid against the dollar after a set of gloomy reports, including record overnight deposits with the European Central Bank and a lackluster debt auction in Germany. Investors viewed the developments as signs that the strains in the currency union haven't disappeared despite days of relative calm in European markets.

The most actively traded copper contract, for March delivery, fell 9.4 cents, or 2.7%, to settle at $3.4345 a pound on the Comex division of the New York Mercantile Exchange.

Traders are "looking at the global economy, and it doesn't look all that great," said Bart Melek, head of commodity strategy with TD Securities. "There are concerns that the sovereign debt crisis may worsen, and in fact is hurting the economy already."

Copper prices have been pressured by the economic turmoil surrounding the euro zone's debt debacle, as a financial crisis there could slam the global industrial economy. Other investors worried that a lack of cash in Europe's financial system could decrease bank financing for commodity deals.

The ICE US Dollar Index was at about 80.05 at the close of Comex copper floor trading, up from 79.64 late Tuesday in New York. A rising dollar can pressure dollar-denominated copper by making the futures more expensive for potential buyers using other currencies.

Copper settled Tuesday at the highest level since Dec. 9 after readings on manufacturing in China and the U.S. pointed to steady demand for the industrial metal. The metal is sensitive to such economic reports because of its applications in everything from plumbing and wiring to consumer electronics and automobiles.

Despite the strong economic data, the European debt situation "hangs heavily over the markets, as does the risk of contagion," said William Adams, an analyst with metals research service FastMarkets. "On top of that, China and Asia are seeing growth slow."

Copper settlements (ranges include electronic and pit trading):
Jan $3.4295; down 9.55 cents; Range $3.4230-$3.4800
Mar $3.4345; down 9.40 cents; Range $3.4200-$3.5245