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METALS-Copper falls, market cautious ahead of Fed decision

Julia Fioretti
Wednesday, 18 Dec 2013 | 6:31 AM ET

(Updates prices, adds analyst comment; previous SINGAPORE)

* Traders eye Fed decision, statement at 1900 GMT

* Tightness in copper's cash to 3-month spread eases

LONDON, Dec 18 (Reuters) - Copper fell on Wednesday, slipping further from near two-month highs hit this week, with investors cautious as recent upbeat economic data stoked expectation of an early trimming of the U.S. monetary stimulus.

The U.S. central bank ends a two-day policy meeting later on Wednesday to decide on the future of its $85 billion-a-month bond purchases which have expanded liquidity, funnelling money into commodities such as metals.

Benchmark copper on the London Metal Exchange (LME) traded at $7,229 a tonne at 1121 GMT, down from a close at $7,275 on Tuesday.

A pickup in global factory activity and a near-term shortage of refined metal has helped copper recover five percent from a three-month low of $6,910 a tonne struck last month.

German business morale improved in December, hitting its highest level since April 2012, in a sign growth in Europe's largest economy could accelerate next year.

Although a majority of economists polled by Reuters expected the Fed to curb its stimulus in March, the recent run of upbeat economic data has steadily shortened the odds on an announcement at this week's meeting, or in January.

"The Fed has all the ammunition they would need if they wanted to start to taper, in terms of data," said Capital Economics analyst Tom Pugh.

Upbeat economic data including strong industrial output from the United States and solid manufacturing numbers in Europe have boosted optimism about the state of the global economy.

The rosier economic outlook has bolstered the view among some market participants that the Fed could begin to tighten the tap on the flow of cheap dollars sooner than expected, thereby strengthening the dollar in which many commodities are priced.

The dollar was steady against a basket of currencies, as investors awaited the Fed's decision later in the day.

A strong dollar makes commodities priced in the U.S. unit more expensive for holders of other currencies.

SUPPLY TIGHTNESS EASING

Low availability of physical material for nearby delivery had supported copper in the last few days, pushing its forward curve into a steeper backwardation - the premium paid for cash over three-month copper. CMCU0-3>

On Wednesday, however, the cash-to-three month spread had eased significantly to $5 a tonne, coming off the 19-month high of $30 hit on Monday.

Copper stocks in LME-monitored warehouses fell 1,600 tonnes to total 384,950 tonnes, latest exchange data showed.

Looking ahead to next year, some analysts expect more supply to come on stream.

"We are expecting the market to be in surplus next year, so that should put some downward pressure on prices," Pugh said.

Zinc traded at $2000 a tonne from $1,999.5, earlier hitting a four-month high at $2,004 a tonne.

The global zinc market was in deficit by 2,000 tonnes in the first 10 months of the year, a monthly bulletin from Lisbon-based International Lead and Zinc Study Group showed earlier this week.

Nickel traded at $14,087 a tonne from $14,060 while aluminium exchanged hands at $1,802.50 a tonne from $1,797.

Tin was unchanged at $22,775, and lead was at $2,170, down from $2,173.

Three month LME copper CMCU3

Most active ShFE copper SCFcv1

Three month LME aluminium CMAL3

Most active ShFE aluminium SAFcv1

Three month LME zinc CMZN3

Most active ShFE zinc SZNcv1

Three month LME lead CMPB3

Most active ShFE lead SPBcv1

Three month LME nickel CMNI3

Three month LME tin CMSN3

(Additional reporting by Manolo Serapio Jr in Singapore, editing by William Hardy)