Copper gained on Wednesday with buyers returning to the market

Bargain hunters push copper prices higher

ANNA STABLUM

Wednesday, January 02, 2008

LONDON — Copper gained on Wednesday with buyers returning to the market after selling in the last days of 2007, but doubts about global economic growth dampened sentiment, analysts said.

Other commodity markets hit records, with gold rising to an all-time high of more than $850 (U.S.) per ounce and oil touching $100 per barrel, but positive sentiment in these markets did not spill over into industrial metals.

“There is a bit of bargain hunting ... volumes are much better than New Year's Eve but the markets are still pretty subdued,” analyst Leon Westgate at Standard Bank said.

Copper for delivery in three months on the London Metal Exchange was up $85 at $6,755 per tonne at the end of the day after it earlier traded up to $6,820.

MF Global's technical charts for copper were neutral at these levels with prices drifting in a range with support at $6,430 and resistance at $7,080, analyst Edward Meir said in a report.

“The bias could resume towards the downside, especially if U.S. numbers disappoint this week,” he said.

On Monday the metal, used widely in sectors such as construction and power, fell about 2 per cent to close at $6,670.

The U.S. Institute for Supply Management index for December, a key gauge of U.S. economic performance, was at its lowest since April, 2003, data which knocked the dollar, but metals prices did not immediately react.

The U.S. Federal Reserve at 19:00 (GMT) will release minutes from its last rate setting meeting in which it cut rates by 25 basis points.

“The market will take this week to assess the situation and then it will pick up next week,” Westgate said, pointing to the reweighting of fund indices.

Between January 8 and 14, the Dow Jones AIG commodity index

will adjust the weighting of many commodities including zinc, nickel, copper and aluminum.

The adjustment is likely to involve the purchase of about 250,000 tonnes of zinc.

“Zinc would likely be the main beneficiary,” Mr. Westgate said.

Zinc ended the day $85 higher at $2,400/2,402 a tonne, after shedding around 45 per cent in 2007.

However, the impact of the reweighting was expected to be short-lived as the markets looked sluggish due to concerns about the health of the world's economies and future metals demand, Standard Bank's Westgate said.

Economic growth in China, copper's top consumer, is expected to slow moderately this year as cooling policies take effect, the State Information Centre said.

Gross domestic product growth is projected to ease to 10.8 per cent in 2008 from an estimated 11.4 per cent last year.

Copper rallied 5 percent during 2007, its sixth straight annual increase, but well short of the 44 per cent gain in 2006.

Concerns about slowing Chinese demand growth as well doubts about the U.S. economy weighed on base metals in the latter part of 2007, prompted by credit worries and a spate of dismal data, which helped drag copper down from above $8,300 in October.

Despite that, LME stocks ended the year at 197,450 tonnes, equivalent to around four days of world consumption, and only 7,000 tonnes higher than at the end of 2006. Shanghai stocks were at 25,597 tonnes, down around 5,700 tonnes from the end of 2006. On Wednesday, LME stocks rose 1,475 tonnes to 198,925.

LME aluminum picked up $31 to $2,451.

The lightweight metal could be a strong performer in 2008 after it fell 14 per cent in 2007, buoyed by high energy prices.

Nickel, the key ingredient in stainless steel, closed at $27,200 per tonne, up from its previous close of $26,350.

Tin was untraded but quoted at $16,350/16,400 per tonne, down $50. Earlier it fell 4 per cent to an intraday low of $15,750 on option related selling which triggered stops, traders said.

Three-months lead gained $65 to $2,615 per tonne.

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Fed rate cut prompted by worries about housing, credit problems

Fed rate cut prompted by worries about housing, credit problems

JEANNINE AVERSA

Wednesday, January 02, 2008

WASHINGTON — Worsening problems in the housing, credit and financial markets drove the Federal Reserve to do an about-face in December and slice its key interest rate yet again with the hope it would help bolster an economy that was losing speed, according to meeting minutes made public Wednesday.

All those problems also greatly increased uncertainty about the economy's outlook, prompting Fed policy makers to keep all their option open about their next move, the minutes of the closed door meeting on Dec. 11 revealed.

“Although members agreed that the stance of policy should be eased, they also recognized that the situation was quite fluid and the economic outlook unusually uncertain,” the minutes said.

Fed Chairman Ben Bernanke and all but one of his colleagues agreed to trim the Fed key rate by one-quarter percentage point to 4.25 per cent, a two-year low. The central bank ordered its key rate to be lowered three times last year; the December reduction was most recent one.

The decision to cut rates essentially marked a reversal for the central bank, which had hinted at its previous meeting in October that the Fed's two rate cuts probably would be sufficient to help the economy survive the housing and credit stresses. But the economy's problems intensified after that meeting, forcing the Fed to change its stance.

“Members judged that the softening in the outlook for economic growth warranted an easing of the stance of policy at this meeting,” the minutes said. “In view of the further tightening of credit and deterioration of financial market conditions, the stance of monetary policy now appeared to be somewhat restrictive,” according to the minutes.

The 9-1 decision for a quarter-point reduction in December was opposed by Eric Rosengren, president of the Federal Reserve Bank of Boston. He preferred a bolder, half-percentage point cut.

In Mr. Rosengren's view, the worsening housing slump, high energy prices and more cautious spending by individuals and businesses raised the risks of continued economic weakness, the minutes stated. “In light of that possibility, a more decisive policy response was called for to minimize that risk,” the minutes said, explaining Mr. Rosengren's concerns.

However, the other Fed policy makers also had concerns that rising energy prices could spread inflation through the economy. That concern figured into the Fed's decision to cut rates by a modest one-quarter point cut in December, the minutes suggested.

“Inflation pressures and risks remained,” according to the minutes.

To bolster the economy, many economists predict the Fed will slice rates yet again at next meeting, on Jan. 29-30, the first regularly scheduled gathering of 2008. The economy is believed to have slowed sharply in the October-to-December, probably to a pace of just 1.5 per cent or less, according to analysts' projections. Economic growth in the first three months of this year also is expected to be weak.

The big worry among economists is that individuals will clamp down on spending and businesses will become reluctant to hire workers, throwing the economy into a tailspin. The odds of a recession have grown, with some economists putting it just under 50 per cent.

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