Copper takes dive on slowing Chinese manufacturing

Copper dived 3 per cent overnight, its biggest one-day loss in nearly two weeks, as slowing manufacturing growth in China and a mounting debt crisis in Europe rattled commodity investors.

Fears over slower global growth and economic instability took a toll across the complex, with tin falling to its lowest since January, aluminium hitting a two-week low and nickel trading at its lowest since late November.

The sell-off began early following HSBC's flash manufacturing purchasing managers' index showing a further slowdown in China's factory expansion. It gathered pace in Europe as fears of a wider euro zone sovereign debt crisis gripped the market, driving down the euro.

"The underlying concern is the possibility of the euro completely dissolving. Also, if China's growth slows, it could adversely affect other growth in the region which would have extreme ramifications on the global recovery," said Adam Sarhan, chief executive of Sarhan Capital.

London Metal Exchange (LME) copper for delivery in three months crumbled $276 or 3 percent to end at $8,795 a tonne. Technical selling was triggered with the metal's break below the 200-day moving average, at around $8,820 a tonne.

In New York, the July COMEX contract sank 13.00 cents to settle at $3.99015 per lb, after dealing between $3.9505 and $4.1105.

With macro-economic fears on the rise, the correlation between copper and oil has strengthened to its highest in a year.

"Oil is a great barometer for economic growth and copper has got the PhD... When you start seeing demand wane out of Asia, it's directly reflected in copper and almost directly reflected in the oil markets," Sarhan said.

After a three-notch cut of Greek debt by Fitch Ratings on Friday, which pushed the country deeper into junk status, rival Standard & Poor's cut its outlook for Italy to "negative" from "stable" on Saturday.

"Not only do you have concerns about Europe at the moment, and that's going to be an issue for the next few days, you continue to have concerns over Chinese growth," analyst Michael Widmer of Merrill Lynch-BoA said.

"You're going back to where you were in the second half of 2010, the only difference is that you don't have QE2 (as support)," he added.

Demand prospects for copper took an additional hit from data showing China's refined copper imports dropped 16.6 percent in April from the previous month. Implied demand was steady from March but down 7.2 percent from a year ago, according to Reuters calculations.

At LME warehouses, rising copper inventories have placed further strain upon prices, even as production levels at some of the world's biggest mining companies fell in the first quarter of the year.

Latest LME data showed stocks climb 1,925 tonnes to 468,175 tonnes, near their highest levels since June 2010.

Nickel, lead and tin were all down more than four percent at one point with worsening chart pictures speeding liquidation.

"Bearish comments over the metals fundamental outlook from Norilsk, further dent(ed) sentiment," said Standard Bank.

Global nickel consumption will grow by more than 5 percent in 2011 and output will expand by 10 percent, bringing the market into balance from a deficit a year ago, the chief analyst for Norilsk Nickel said on Monday.

Nickel tumbled $1,140 to close at $22,400 a tonne, having fallen to $22,320 -- its lowest since Nov. 26.