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METALS-Copper edges lower, market cautious ahead of Fed decision

Julia Fioretti and Eric Onstad
Wednesday, 18 Dec 2013 | 11:03 AM ET

* Traders eye Fed decision, statement at 1900 GMT

* U.S. private sector expands in Dec; housing starts jump

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

* Zinc touches nine-month high

(Adds details, quotes; updates prices)

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

Zinc, however, touched a nine-month high after news emerged this week of a market deficit.

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) dipped 0.2 percent to $7,262.25 a tonne by 1550 GMT.

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.

Figures on Wednesday further strengthened the case to taper, showing that U.S. housing starts surged to their highest level in nearly six years in November.

If the Fed began restricting the flow of cheap dollars sooner than expected, this could strengthen the dollar in which many commodities are priced.

A strong dollar makes commodities priced in the U.S. unit more expensive for holders of other currencies. The dollar was steady against a basket of currencies as investors awaited the Fed's decision later in the day.

ZINC HITS NINE-MONTH HIGH

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 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 rose 0.2 percent to 2,003.50 a tonne, after hitting a nine-month high at $2,009.25.

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.

"Zinc looks quite constructive on the charts and is poised to break out above a three-month trading range should it take out resistance at $2,010 decisively," said analyst Edward Meir at INTL FCStone.

Nickel gained 0.6 percent to $14,143 a tonne while aluminium rose 0.5 percent to $1,806 a tonne.

Tin added 0.2 percent to $22,825 and lead edged down 0.1 percent to $2,172.

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, Keiron Henderson and David Evans)