METALS-Aluminium extends gains on fund buying, short covering
* Aluminium breaks above key chart level
* Traders note big bids in aluminium for second day
* Coming up: U.S. consumer confidence at 1400 GMT
(Adds details, quotes; previous SINGAPORE)
LONDON, Oct 29 (Reuters) - Aluminium touched fresh two-month highs on fund buying and short-covering on Tuesday while copper edged higher on belief the U.S. central bank will extend its stimulus programme.
"We saw some fund buying here which points to a change in trend and can keep going for a while," said Triland Metals in a market report.
Three-month aluminium on the London Metal Exchange (LME) touched a session high of $1,905.50 a tonne, the strongest since Aug. 22 and the fourth straight day of gains.
Aluminium, up 0.2 percent at $1,899.25 a tonne by 1010 GMT, also broke above the 200-day moving average, a key technical signal. A trader in Asia said there were large bids for aluminium for the second day on the trot.
Other traders have said the buying may have been based on views that producers are finally cutting capacity to reduce oversupply or speculation about changes the LME may make to its rules for warehouses, where aluminium stocks are dominant.
Analyst Myrto Sokou at broker Sucden Financial said it may also be related to a new aluminium contract announced by the LME's U.S. rival, the CME Group.
LME open interest data <MAL-OI-TOT> showed a decline of 1,008 lots on Monday when prices rose, suggesting short position holders closed out positions.
LME data also shows one large beneficiary of higher prices, with a large long position for aluminium accounting for between 20-30 percent of outstanding futures positions.
U.S. FED MEETING
Most other metals were slightly firmer, including copper, ahead of a two-day U.S. Federal Reserve meeting that ends on Wednesday. Fed officials are thought unlikely to make any change to monetary policy as they wait for more evidence on the impact of the budget battle.
LME copper added 0.25 percent to $7,208 a tonne after finishing little changed on Monday.
Copper prices dropped to the lowest level since Oct. 11 on Friday at $7,113 and are expected to remain in the $7,000-7,420 band that has contained them since early August.
The most traded January copper contract on the Shanghai Futures Exchange closed barely changed at 51,510 yuan ($8,500) a tonne.
"Any decision by the Fed usually come as a relief to the market. Keeping in mind that the U.S. dollar index is holding below 80, remaining fairly weak, we expect to see a further correction higher in the metals market," said Sokou.
A weak dollar makes commodities priced in the U.S. currency cheaper for buyers outside the United States.
On the other hand, analysts said the upside could be limited since recent data has shown that U.S. economic momentum had begun to falter.
U.S. consumer confidence figures for October are due at 1400 GMT and market operators will be looking at them to try to gauge the impact of the partial government shutdown caused by political wrangling over the budget.
"Initially the shutdown wasn't expected to have such a big impact on global growth, but if it impacts confidence that can have bigger influence in the wider economy," said Alexandra Knight of National Australia Bank in Melbourne.
"We're still thinking that the impact won't be too big, but we have delayed our expectations of tapering, which should be supportive for metals," she added.
1145 U.S. ICSC weekly chain store sales
1230 U.S. Producer prices
1230 U.S. Retail sales
1300 U.S. S&P/Case-Shiller home price index
1400 U.S. Business inventories
Federal Open Market Committee begins two-day meeting on monetary policy
Three month LME copper
Most active ShFE copper
Three month LME aluminium
Most active ShFE aluminium
Three month LME zinc
Most active ShFE zinc
Three month LME lead
Most active ShFE lead
Three month LME nickel
Three month LME tin
(Additional reporting by Melanie Burton; editing by Jason Neely)