LONDON (Reuters) - Copper gave up ground on Wednesday, snapping four days of gains, as more gloomy data from Europe and China reminded investors that underlying demand for industrial metals was sluggish despite efforts of central banks to boost economic growth.
Weak readings for purchasing managers indexes (PMIs) suggested it was almost inevitable the euro zone returned to recession in the third quarter, one more in a succession of indications the global economy is struggling.
Further signs of slowing expansion in China, which accounted for 40 percent of refined copper demand last year, also came on Wednesday, with the country's official PMI for the services sector falling to 53.7 in September from 56.3 in August.
"We seem to go from QE3-related euphoria to reality-related depression. It's obviously too quick, but we haven't yet seen any real fundamental follow through to support the rally that was prompted by QE3," said analyst David Wilson at Citigroup in London.
Three-month copper on the London Metal Exchange shed 0.5 percent in official trading to $8,284.50 a metric tonne, after climbing more than 2 percent over the past four sessions.
Copper has gained 9 percent since the start of September and touched a 4-1/2 month peak of $8,422, fuelled by the third round of quantitative easing (QE) by the U.S. Federal Reserve, the promise of bond buying by the European Central Bank (ECB) and stimulus measures in Japan and China.
Some of the gains have been due to a weaker dollar against the euro on the back of QE3, but the expected launch of ECB purchases of Spanish bonds may reverse the trend, Wilson warned.
"If Europe is printing (money) as well and that reverses, does that remove support for commodities given the fact that real industrial demand for metals doesn't seem to be that strong?"
Wilson, who expects metals to drift lower in coming months, forecasts copper will average $8,000 a tonne in the fourth quarter.
ANZ commodity strategist Nick Trevethan in Singapore also notes the tug of war between liquidity bulls and those concerned about the outlook for top metals consumer China.
"Data from China is still showing the economy is bottoming - not yet improving - and you still have this political paralysis going on ahead of the leadership transition in China," he said.
"We typically will see demand pick up in December. The question is, will it pick up as significantly as in the past? I don't think so."
Despite recent gains, copper has been trapped in a narrow range in lean volumes with China away since Monday due to public holidays.
Reflecting a lack of nearby interest in copper, the LME forward curve has flattened with cash copper trading at a small discount to three-month prices on Tuesday from a $6.50 premium at the end of September.
The United States will be in focus this week with nonfarm payrolls data for September due on Friday after U.S. auto sector sales posted their best showing in 4-1/2 years.
Three month zinc lost 0.5 percent in official rings to $2,087.50 a tonne and LME inventories rose by 1,575 metric tonnes (1,736 tons) to 995,625, creeping back up to a peak of 1.015 million tonnes hit in July.
Standard Bank said in their Commodities Quarterly that LME cash price is expected to average $2,045 a tonne next year, compared to a close of $2,063.75 on Tuesday.
"Ultimately, with European demand worse than expected, zinc demand and indeed price support will depend on continued strength from the U.S. auto market, and a pick-up in infrastructure spending in China. Given the overhang of refined and concentrate stocks, however, it may be premiums that benefit rather than prices."
Three-month aluminum lost 0.5 percent to $2,097.50 a tonne in official trading and battery metal lead rose 0.1 percent to $2,302.
Tin fell 0.9 percent in official rings to $22,100 a tonne and stainless steel material nickel bucked the trend to rise 1.3 percent to $18,690.
Additional reporting by Melanie Burton and Manolo Serapio Jr.; editing by William Hardy and James Jukwey