Copper drifts on limited China buying, BOJ stimulus supports

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SummaryCopper edged down on Wednesday, but stayed near the eleven-day high it hit the previous day after the Bank of Japan announced aggressive monetary stimulus, while physical buying in China was quiet ahead of holidays next month.

Copper edged down on Wednesday, but stayed near the eleven-day high it hit the previous day after the Bank of Japan announced aggressive monetary stimulus, while physical buying in China was quiet ahead of holidays next month.

Attention is shifting towards the scale of a revival in economic growth in top consumer China, with traders hoping HSBC's China flash purchasing manufacturer's index, due for release on Thursday, will provide fresh momentum.

"Things have fizzled out a little from yesterday," said Thomas Lam, chief economist at DMG & Partners Securities in Hong Kong.

"It's possible in the very near term the China macro backdrop could continue to show further signs of stabilisation and that it could fuel positive sentiment. But given all the uncertainties in the global economy, it's unlikely there will be a sustained significant rally for now."

Three-month copper on the London Metal Exchange was trading at $8,115 a tonne by 0702 GMT, slipping 0.18 percent from the previous session. It gained 1 percent on Tuesday to hit its highest since Jan. 11 at $8,144.50.

Copper has been stuck in a range of $7,920 to $8,250 this year, and traders and analysts expect prices to largely remain flat until after the Lunar New Year in mid-February.

The most-traded May copper contract on the Shanghai Futures Exchange closed almost unchanged at 58,810 yuan ($9,500) a tonne. It marked its second highest point this year at 59,020 a tonne the session before.

The BOJ announced on Tuesday its most determined effort yet to end years of economic stagnation, saying it would switch to an open-ended commitment to buying assets next year and double its inflation target to 2 percent.

The move had a positive impact on equity markets which in turn helped to lift metals, said a Hong Kong Based trader.

"But I haven't seen any change on the fundamental side which remains quite weak. Traders tend not to build positions until after the Lunar New Year when industry begins restocking," he added.

Markets in China will be closed from Feb. 11-15.

European stock index futures pointed to a slightly higher start on Wednesday on expectations of a strong fourth-quarter earnings season and on signs that a four-month extension of the U.S. debt limit could be passed later in the day.

The White House on Tuesday welcomed signals by Republican leaders in the House of Representatives that they aim to pass a nearly four-month extension of the U.S. debt limit, saying the move defuses fears of a damaging US debt default.

Still, without further fresh signs of growth from China, metals could enter a soft patch in the near term, Sweden's SE commodity research division wrote in a research note.

"With the recent (dubious) rally on more positive Chinese sentiment having lost momentum, we see better buying opportunities in H1," it said.

"Most likely, the exclusive market focus on Chinese economic conditions will end this year as OECD demand appears increasingly likely to improve." MARKETS NEWS

BHP Billiton , the world's biggest mining company, reported its quarterly iron ore output rose 3 percent, slightly below analysts' estimates, as it races to keep pace with demand from Chinese steelmakers.

Supply from the world's biggest copper mine, Chile's Escondida, is expected to rise 20 percent next year on improving ore grades, it said.

Slowing Chinese growth and a surge of new supply will limit gains for benchmark industrial metal copper this year, with further price slippage seen in 2014 as the market surplus deepens, a Reuters poll showed this week.

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