Reuters reported that copper fell as concerns about Spain's debt troubles kept investors cautious although hopes the Federal Reserve could offer more stimulus for the US economy helped support the outlook for demand and limit falls in base metals.

Three month copper on the London Metal Exchange fell to USD 7,579.50 per tonne at 0901 GMT down 0.4% from Tuesday's close of USD 7,609 per tonne. The metal used in power and construction is down more than 10% so far this quarter and is trading 0.3% lower for the year to date.

Fears lingered that Spain's debt crisis could spiral out of control, with its soaring borrowing costs showing that a euro zone deal to lend its banks up to EUR 100 billion had not solved its problems or restored investor confidence. It also suggests more aid may be needed to fix its finances.

Mr Daniel Briesemann an analyst at Commerzbank said that "The market is worried about the situation in Spain and there is speculation that they might have to take full advantage of the bailout funds, not just for their banks."

The US Federal Reserve concludes 2 day policy meeting and expectations are high that the central bank will extend its bond buying program dubbed Operation Twist to shore up the economy.

Mr Briesemann said that "Expectations are high about further stimulus from the Fed, but if they come up with nothing new or only take minor actions, then the market could be quite disappointed. Prices could come under pressure after the statement.”
The liquidity hit provided by previous doses of Fed stimulus has lifted riskier assets and financial markets have become highly sensitive to expectations of further moves, with global equities and commodities tending to rise and the dollar coming under pressure when action is seen as increasingly likely.

ANZ analysts said that we expect that the FOMC will probably say that the downside risks to growth have intensified and the Committee stands ready to act as necessary, especially to an extreme event in Europe. If the FOMC does ease policy further we think it is likely to be an extension of ‘Operation Twist' rather than additional outright securities purchases.

Also helping limit falls for base metals, the euro steadied against the dollar ahead of the conclusion of the Fed meeting. A weak dollar makes commodities priced in the US unit cheaper for holders of other currencies.

Source - Reuters

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