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Comex copper falls through support to 7-week low

NEW YORK: Comex copper futures extended their correction from recent contract highs, falling through last week's bottom to a 1-1/2 month low as bulls threw in the towel before the Federal Reserve hiked interest rates, as expected.

Active March settled down 2.05 cents at 82.25 cents a lb, its lowest since touching 80.50 on Dec 15. It traded in a range of 81.80 to 84.30 with modest commission house buying providing a floor, dealers said.

"From a technical perspective, when we started trading down below 83.40/30 cents we triggered some sell-stops on a little bit of managed-money liquidation," said James Quinn, commodities commentator at A.G. Edwards and Sons.

Spot February fell 1.90 cents to 81.80 and May shed 2.05 to close at 83.25 cents.

In an afternoon statement concluding two-day talks, the Federal Open Market Committee (FOMC) said it had raised its target for the federal funds rate on overnight loans between banks 25 basis points to 5.75 percent.

It also raised its more-symbolic discount rate on direct loans to banks to 5.25 percent from 5.0 percent.

Putting the market on notice for futher tightening at its next regular meetings, the Fed warned that inflation was the biggest threat to the booming economy.

"The initial carryover reaction to it will probably depend on how the equity market's react. But I don't think copper is going under 80 cents," said David Rinehimer, director of commodities research at Salomon Smith Barney.

The Dow Jones Industrial Average was up 51 points in late afternoon trade. The tech-heavy NASDAQ was up 71 points.

Analysts said that the quarter percentage point hike had been factored into the market for weeks. But the outcome should not greatly impact copper demand, they said.

U.S. and overseas growth has been keeping consumption of industrial and construction materials like copper strong. Until recently the charts were also constructive for March copper, which hit a contract high of 88.50 cents on Jan 20.

On LME, three-months copper ended down $30 at $1,826 a tonne, well below its peak above $1,900 reached during the wave of optimism in mid January.

Dealers lamented that the third consecutive fall in LME copper warehouse stocks should have supported prices Wednesday. Stocks were down 2,725 tonnes at 804,300 tonnes, while Comex inventories were up 149 short tons at 95,736 tons on Tuesday.

"Copper was disappointing pretty much all session, because you had another pretty big decline in warehouse stocks in Europe," Quinn said. "Copper failed to react because of a lot of anxiety over the FOMC."

Estimated volume was 25,000 contracts, more than double Tuesday's tally of 11,942 contracts.

The nine-day relative strength index for March copper fell to an oversold 26 from 41 on Tuesday.

Technical analysts usually interpret an RSI reading of 70 or higher as indicating overbought conditions and 30 or below as oversold. -Reuters