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METALS-Copper hits 11-week peak on hopes for trade deal, soft dollar

Eric Onstad

* GRAPHIC-2019 asset returns: http://tmsnrt.rs/2jvdmXl (Recasts, adds analyst comment, updates prices)

LONDON, Feb 19 (Reuters) - Copper prices touched the highest in more than two months on Tuesday due to a weaker dollar and hopes that the United States and China would forge a trade deal.

A new round of talks between the United States and top metals consumer China take place in Washington on Tuesday aimed at resolving a trade war that has weighed on metals prices for a year.

"Optimism surrounding a trade deal is increasing and we have seen this in the option market," said Geordie Wilkes, head of research at broker Sucden Financial.

The dollar index weakened in European trading, helping spark a rebound in copper on the London Metal Exchange after prices had fallen earlier in the session, traders said.

"Buying pressure has been strong and we would anticipate some technical buying in copper after breaking through the 200-day moving average, paving the way for a test of $6,350-$6,400," Wilkes said.

Benchmark LME copper was up 0.6 percent at $6,313 a tonne by 1530 GMT, the highest since Dec. 3 and marking the fifth straight daily gain.

Copper, regarded by many as a bellwether of the global economy because of its many industrial uses, has rebounded by more than 10 percent from an 18-month low hit on Jan. 3, partly on optimism about a trade deal.

Hopes for further government stimulus has also buoyed prices of copper and other base metals, but that could be unrealistic, said analyst Carsten Menke at Julius Baer in Zurich.

"It looks like China is taking a much more granular approach, much less targeted and direct stimulus, and therefore much less metal intensive," he said.

Julius Baer has a three-month target for copper of $6,150.

* COPPER SPREADS: The premium of cash copper over three-month copper <CMCU0-3> spiked to $58 by Monday's close, the highest since January 2015 and up from $5 on Friday. The premium last traded at $27 on Tuesday.

Traders attributed that to a short-term squeeze linked to a large stocks position ahead of Wednesday's contract expiry. LME data <0#LME-WHL> showed one participant was holding 50-80 percent of on-warrant copper inventories, those not earmarked for delivery.

* MALAYSIA BAUXITE: Malaysia said it would not extend a moratorium imposed on bauxite mining on environmental grounds that expires on March 31. Before the moratorium, Malaysia accounted for more than 40 percent of China's imports.

Three-month LME aluminium rose 0.2 percent to $1,859 a tonne.

* PRICES: Zinc gained 0.5 percent to $2,651, lead added 0.1 percent to $2,032, nickel climbed 0.8 percent to $12,560 and tin rose 0.1 percent to $21,135.

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($1 = 6.7768 Chinese yuan renminbi)

(Additional reporting by Tom Daly in Beijing Editing by David Evans and Edmund Blair)