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METALS-Copper pressured by China growth worries

Eric Onstad and Harpreet Bhal
Thursday, 23 Jan 2014 | 12:28 PM ET

* China copper production falls 5.9 pct in Dec to hit 616,038 T

* China flash HSBC PMI shows slowing growth in factories

* Dollar falls vs basket of currencies

(Updates with closing prices)

LONDON, Jan 23 (Reuters) - Copper fell on Thursday, dragged lower by disappointing Chinese manufacturing data that reinforced concerns about the outlook for economic growth, but further declines were capped by a weak dollar and a shortfall of refined metal.

Three-month copper on the London Metal Exchange ended at $7,207 a tonne, down from a close of $7,292 on Wednesday.

Activity in China's factory sector contracted in January for the first time in six months, a preliminary survey showed, adding to concerns about the economy after data earlier in the week showed growth in the world's second largest economy lost steam in December.

China is the world's top user of copper, accounting for about 40 percent of global demand.

"The market is clear that the Chinese economy is slowing down, there's no doubt about it. The PMI (Purchasing Managers' Index) this morning, it's something that was to a certain extent expected but the market was still disappointed," said analyst Andrey Kryuchenkov at VTB Capital in London.

Copper prices could drift lower to $7,200 in the coming days, where it is likely to find support, Kryuchenkov added.

"Generally sentiment, as well as open interest, has moved lower coinciding with shrinking positions - some profit taking, some book squaring ahead of the Chinese new year."

Open interest in LME copper <MCU-OI-TOT> has declined by 4 percent since Jan. 9 after climbing by 13 percent during the five weeks before that.

Trading is expected to be subdued in the run up to the week-long Lunar New Year holiday in China that begins late next week.

Keeping prices from declining further were falls in the dollar against a basket of currencies, making commodities priced in the U.S. unit cheaper for holders of other currencies.

Also lending support to copper were signs of an underlying shortage of refined metal, evident in LME futures spreads.

The premium of cash copper over the benchmark contract, however, has eased in recent days and was last indicated at $36.50 a tonne, down from a peak of $64.50. <CMCU0-3>

Exacerbating a shortage of accessible copper in China, refined copper output in December fell 5.9 percent from a record high the previous month, ending months of rising production led by increased profits at smelters, data from the National Bureau of Statistics showed.

"We would expect to see smelter output accelerate in the coming months both inside and outside of China helping to ease cathode tightness, while scrap availability is already on the increase," Macquarie analysts said in a note.

The global refined copper market, including China's unreported stocks, returned to a small surplus in October, but was in a deficit of more than 500,000 tonnes in the first 10 months of 2013, according to the International Copper Study Group (ICSG).

In other metals, zinc ended at $2,046 from Wednesday's close of $2,084, lead ended at $2,153 from $2,195 and nickel closed at $14,670 from $14,795.

Tin, untraded at the close, was bid at $22,000 - flat against Wednesday's close; and aluminium, also untraded, was bid at $1,763 from a last bid of $1,783 on Wednesday.

PRICES

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 Pravin Char)