LONDON/NEW YORK (Reuters) - Copper prices were almost 1 percent lower on Monday in line with a weaker euro as a string of bleak global macroeconomic data reignited concerns about demand for the red metal, bringing an abrupt end to last week's short covering rally.
Euphoria over last week's EU summit deal faded, after the U.S. manufacturing sector unexpectedly contracted in June for the first time since July 2009 as new orders tumbled, according to an industry report released on Monday.
That came after business surveys on Monday showed manufacturing activity in the euro zone held at its lowest level since June 2009, with factories preparing for worse to come as jobs were cut at the fastest rate in two-and-a-half years.
A factory slump in China and Japan deepened as crumbling orders from abroad dragged activity to seven-month lows, heightening worries that the health of the global economy is deteriorating.
"Although last week's EU Summit provided a brief glimmer of hope, triggering a sharp bout of end-quarter short covering, today's PMI data has signaled a return to reality and reinforced evidence of a faltering global economic outlook," said VTB Capital base metal analyst Wiktor Bielski.
Three-month copper on the London Metal Exchange closed at $7,625 per tonne from $7,690 at the close on Friday, when the metal surged 4.1 percent, its largest single-day rise since November 30.
In New York, the most-active September COMEX contract settled at $3.469 per lb, down 0.78 percent from $3.4965 per lb on Friday.
Monday's downbeat performance was in stark contrast to Friday's jubilation when prices rose almost 5 percent to one-month highs following a deal by Euro leaders to allow rescue funds for sovereign debt purchases without forcing countries to adopt extra austerity measures. Countries will also be able to recapitalize banks directly without increasing their budget deficit.
"I suspect markets are going to look again at what was agreed on Friday with the euro zone, and the risk is they will conclude that this isn't the silver bullet and a lot more needs to be known," BNP Paribas analyst Stephen Briggs said.
The market was also nervous ahead of a heavy week for economic data. Trading volumes in the United States may be lower than usual ahead of the Independence Day holiday on Wednesday.
Spanish and Italian government bond yields continued to fall on Monday, but the euro dipped and the dollar rose against a basket of currencies as summit-deal euphoria faded. A weak euro makes dollar-priced metals more costly for European investors. <GVD/EUR> <FRX/>
"The EU summit also lifted industrial metals prices. Being the most cyclical markets, industrial metals may find it more difficult than other commodities to sustain their latest gains as China's manufacturing activity has yet to improve," said Credit Suisse in a note.
Market players noted that copper demand had improved in China in recent weeks as bargain-hunting consumers restocked a bit to take advantage of lower prices, but overall demand remained low.
"Investors are less focused on the Chinese physical copper market for now as things are still gloomy, with downstream industry orders still sluggish," said Orient Futures derivatives director Andy Du.
In the United States, consumer spending growth ground to a halt in May as auto purchases flagged, while confidence ebbed to a six-month low in June, the latest signs of trouble for the economy.
Federal Reserve officials on Friday said they were keeping an eye out for any signs that slowing growth was raising deflation risks but differed on how worrisome sluggish job markets were for the modest U.S. economic recovery.
Packaging metal aluminum closed at $1,909 a tonne from a close of $1,911, recovering from last week's two-year lows that followed news China's top aluminum-producing province, Henan, had cut electricity prices for smelters.
Traders in China came back into the market after realizing the tariff cuts were too small to boost additional supplies and that top producer Aluminum Corporation of China Limited had raised its long positions in Shanghai aluminum even as prices fell.
"It's clear they are prepared to support domestic aluminum prices by buying or by cutting production," said a trader.
Soldering metal tin closed at $18,900 a tonne from $18,775 at the close on Friday, battery material lead at $1,879 a tonne from $1,861, nickel at $16,750 a tonne from $16,730, and zinc at $1,872 a tonne from $1,880.
(This version of the story has been corrected to fix COMEX settlement and percentage change in 7th paragraph)
Additional reporting by Susan Thomas; editing by William Hardy, Jane Baird and Bob Burgdorfer