Jul 03, 2012 (Dow Jones) NEW YORK--Copper futures vaulted to a seven-week settlement high Tuesday, as anticipation of looser monetary policy from central banks in China and Europe bolstered trader confidence.
The most actively traded contract, for September delivery, gained 7.10 cents, or 2.1%, to settle at $3.5400 a pound on the Comex division of the New York Mercantile Exchange. This was the contract's highest settlement price since May 14.
A front-page story by a Chinese state-owned newspaper calling for looser lending rules ignited a copper rally overnight. China accounts for about 40% of the global demand for copper. Tighter credit rules there have curtailed China's manufacturing and construction activity, reducing the country's demand for copper. Traders hope that if Beijing rolls back some of these policies, it will bolster business activity and boost demand for copper.
Copper's rally gained speed during European and U.S. trading hours, on hopes that the European Central Bank and the Bank of England will both announce cuts to benchmark interest rates following separate policy setting meeting Thursday.
"The ECB is due to announce its bench mark interest rate on [Thursday] with some forecasts of a reduction to 0.75%," traders at Sucden said in a note to clients.
Investors have grown increasingly hopeful of such action after signals from a leading ECB executive last week that the bank could reduce its interest rates to under 1%.
Copper primarily goes into making electric wires and water pipes, and has broad applications across general manufacturing, automotive production, electronics and construction. Demand for copper increases as economic growth expands.
Copper prices also are likely being helped by the repurchasing of previously sold positions by traders who want to close out bets on lower copper prices, Sucden said. With a major U.S. holiday on Wednesday, central bank policy decisions due on Thursday and monthly U.S. employment report expected Friday, "it's not a great surprise to see positions closed out in advance of this," Sucden added.