LONDON/NEW YORK (Reuters) - Copper surged over 4 percent on Friday, its biggest one-day gain since November, as the latest euro-zone rescue deal boosted a broad range of commodity and financial markets with investors scrambling to cover short positions.
Even after the day’s sharp gains, copper still ended the second quarter down around 8 percent in New York and 9 percent in London, its sharpest quarterly decline since the middle of last year.
Leaders of the 17-nation euro zone agreed rescue funds could be used 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.
Few other details were available of the deal, agreed after all-night talks, but it relieved investors who piled back into commodity and equities markets and bought euros, placing the single currency on track for its sharpest daily rise against the dollar in eight months.
“Around midnight, it was almost like a miracle came out with a promise of free money. (Copper) ran through stops in a short-covering rally,” said a New York-based trader.
Three-month copper on the London Metal Exchange closed at $7,690 a tonne, more than 4 percent up from $7,385 at the close on Thursday. Earlier it hit a session high and a one-month peak at $7,691 a tonne.
Volumes were double the two-month average, with 30,000 lots traded on the LME’s electronic platform by the end of play, the New York trader said.
In New York, the most-active September COMEX contract settled up almost 5 percent at $3.4965 per lb, its biggest one-day gain since November, after breaking through its 50-day moving average.
After Friday’s rally, New York copper notched its strongest weekly gain so far this year. But for the quarter, it still fell about 8 percent, its weakest three months since the third quarter last year.
U.S. trading volumes are expected to be lower than usual next week, with market participants off for the July 4 Independence Day holiday.
Other base metals were swept higher too, with zinc and aluminum notching up their biggest one-day gains since November and breaking 20- and 14-day moving average resistances respectively. Aluminum powered above $1,900 per tonne, a psychologically important level and around many producers’ cost of production.
Some investors were cautious about whether the rally signaled a turnaround in commodities markets. Previous relief rallies have evaporated within days as new twists in the debt crises emerged and doubts returned about commodity demand amid faltering world economic growth.
“It was an historic deal and it was positive news for the market, although there are still some shades such as the lack of an increase of the bailout fund,” consultant Gianclaudio Torlizzi from T-Commodity said.
“Today’s jump, beside being a relief rally, is down to an end-of-the-quarter markup: the improving economic picture has given funds a pretext to pile up on metals.”
In China, the world’s top consumer of copper, physical copper buyers have been restocking on a hand-to-mouth basis, capitalizing on cheaper prices after Shanghai copper lost over 6,800 yuan ($1,100) from the year’s high of more than 62,000 yuan in February and a smaller LME-over-ShFE copper spread.
In a boost for the copper price, China’s central bank said it would use a basket of policy tools to keep credit and money supply growth at a steady and reasonable pace. China is the world’s top consumer of copper.
Separately, a finance ministry official said China could meet its 2012 economic growth target of 7.5 percent, despite early economic indicators suggesting growth did not pick up this month.
Adding to optimism about the country’s growth, global miner Rio Tinto said it expected Chinese growth to be above 8 percent and that recent fiscal and monetary loosening should lead to a pick-up in growth in the second half.
But with base metals prices still languishing this year as the economic crisis grinds on, Russia’s Norilsk Nickel (GMKN.MM), the world’s largest nickel miner, said it planned to cut its 2012 investment program within a month.
“There is little hope that prices for our metals will rise in the near term. Within a month we will have to revise down our investment plans for 2012,” Chief Executive Vladimir Strzhalkovsky told the company’s annual shareholder meeting.
Three-month nickel closed at $16,730 from $16,215 at the close on Thursday but was down more than 6 percent for the quarter.
“The near-term environment is likely to remain challenging for commodities until economic data point to improving activity more convincingly,” Credit Suisse said in a research note.
Three-month tin closed at $18,775 from $18,500, zinc at $1,880 from $1,794, lead at $1,861 from $1,777 and aluminum at $1,911 from $1,845.
Editing by Jane Baird and David Gregorio