METALS-Copper hits two-week high, euro zone fears ease

NEW YORK/LONDON, May 27 (Reuters) - Copper rose for a second day on Thursday to its highest in two weeks as fears about euro zone debt eased and analysts looked to engines of growth outside of Europe to keep the economic recovery on track.


In tandem with oil and other industrial commodities, copper for July delivery HGN0 on the New York Mercantile Exchange's COMEX division rallied 7.80 cents, or 2.5 percent, to settle at $3.1585 per lb, its strongest close since May 13.


On the London Metal Exchange, benchmark copper CMCU3 peaked at a two-week high at $7,000 per tonne, before ending at $6,984, up $205 from the close on Wednesday.


"I think fears about the euro zone debt have eased somewhat," said Bart Melek, Global Commodity Strategist with BMO Nesbitt Burns in Toronto.


"We see the global economy recovering. Even if austerity measures are taken in Europe, that's not going to have an overly negative impact on the global economy," he said.


Metals found additional support from broad gains in the euro and on Wall Street after China and Kuwait rejected reports they will reduce euro zone investments. [USD/]


Ironically, some analysts were beginning to see Europe's woes as potentially positive for China-dependent metal prices as ongoing debt crisis may forestall Beijing's monetary policy tightening efforts meant to cool its property market.


"You don't want to be slowing other parts of the economy at a time when you're not quite certain about what the export outlook is going to be down the road," Melek said.


Recent readings of global economic activity have presented a mixed picture this year.


The Organization for Economic Co-operation and Development (OECD) said the global economy was recovering faster than expected from recession with Asia leading the way, but remained at risk from huge debts in developed countries and possible overheating in countries such as China.


However, U.S. data showed the economy grew at a slightly slower pace than previously estimated in the first quarter, as business investment slowed. [ID:nN27259780]


Although economic activity slowed from the fourth quarter's robust 5.6 percent pace, analysts still believed the recovery was strong enough to absorb a moderate blow from a European sovereign debt crisis.


"It's certainly a downside risk, but we don't think it's a large risk as long as there is no financial contagion. We don't see the recovery faltering as a result of these concerns in Europe," said Dana Saporta, an economist at Stone & McCarthy Research Associates in Princeton, New Jersey.


Base metal warehouse data lent fundamental support.


LME copper stocks fell 1,275 tonnes to 477,775 tonnes, their lowest point since December, while aluminum stocks dropped 3,525 tonnes to 4.56 million tonnes, having fallen consistently since last Wednesday.


Although total aluminum stocks remain near record highs, most of the material is tied up in financing deals and is unavailable to the market. As a result, spot premiums for physical aluminum are rising.