Jul 13, 2012 (Dow Jones) NEW YORK--Copper prices burst out of the gates Friday, rallying more than 2.5% on hopes that Chinese authorities will ease their grip on lending after the latest economic data showed growth was slowing in the world's second-largest economy.
China consumes about 40% of the world's annual copper output, as the country's factories churn out electrical wiring, pipes, phones, laptop computers, cars and other goods that contain copper.
China's economy expanded by 7.6% in the second quarter from a year earlier, logging a marked decline from the 8.1% growth pace seen during the first three months of 2012.
The reading was within expectations, leading some market watchers to breathe a sigh of relief that the numbers weren't worse.
The report also revived long-running hopes that Beijing will reduce interest rates and bank-reserve requirements, allowing liquidity to flow back into China's financial system. Chinese authorities have already cut benchmark interest rates twice in the past six weeks, aiming to reduce the cost of borrowing for domestic companies and to bolster business activity.
"Expectations, rightly or wrongly, appear to be that further easing measures will emerge with metal prices rallying immediately after the data was released," said Leon Westgate, a metals analyst with Standard Bank.
China's dominant role in the copper market has copper traders hoping that a pickup in growth there will raise the country's demand for copper.
The most-actively traded contract, for September delivery, settled 8.90 cents, or 2.6%, higher at $3.5040 a pound on the Comex division of the New York Mercantile Exchange.
Copper futures also caught a boost from a weaker dollar, which eased against the euro. Copper futures are traded in dollars and become less expensive for investors in other countries when the dollar weakens.
Elsewhere, Moody's Investors Service downgraded its outlook on the base-metals industry to negative from stable. The credit-ratings company pointed to slowing growth in the world's largest economies.
"Recent economic statistics, including purchasing-management indexes for the U.S. and China, indicate a contraction in the global economy," said Carol Cowan, a Moody's vice president and senior credit officer, in a statement. "With China accounting for at least 40% of base-metal demand, its purchasing appetite is a key factor in metal-price movement."
Copper settlements (ranges include electronic and pit trading):
Jul $3.5005; up 8.90 cents; Range $3.4400-$3.5005
Sep $3.5040; up 8.90 cents; Range $3.4125-$3.5075