Copper up on falling inventories, eyes dollar

LONDON, March 27 (Reuters) - Copper rose to its highest level in more than a week on Thursday as London Metal Exchange inventories fell and the dollar headed for its worst quarterly performance since 2004.

Copper for three-month delivery was indicated in the official open outcry session at $8,349/8,350 per tonne after rising to an intraday high of $8,380.

The metal, widely used in the power and construction industries, rose 1.3 percent in the previous session to end at $8,180 a tonne. Year-to-date copper has gained 26 percent.

"It's largely a dollar story ... and it's benefiting copper more than the other base metals which follow suit," said Stephen Briggs, analyst at Societe Generale Corporate and Investment Banking (SGCIB), adding shrinking stocks also gave a boost.

MF Global said market talk, that Chinese stock readings this week could be down after a string of advances, could be a contributing factor behind the rise in copper.

Metals were sold off heavily last week in a broad commodity correction, with copper down nearly 7 percent.

"The sentiment (for industrial metals) has recovered remarkably quickly since last week," said Briggs.

Three-months aluminium was at $2,970 per tonne, up $26 compared with yesterday's close.

The investment bank MF Global said in a report it was hesitant as to whether commodities, which have been rising broadly in recent days, were ready to retest record highs.

Gold eased after rising to a one-week high on Thursday and oil jumped to around $107 per barrel.

"It seems commodities are being boosted by the weaker dollar, while ignoring the rapidly deteriorating U.S. macro backdrop and the weak demand implications this will have on metals," the MF Global report said.

"We therefore are inclined to see this recent move higher in metals as a rally in a short-term downtrend that has yet to fully play out," MF Global said.

The dollar firmed against the euro supported by final U.S. growth data in line with expectations. But the U.S. currency was still on track for the worst quarterly performance since late 2004. [ID:nL27102925]

"In the short run, we are getting a bit of a dollar bounce on (GDP), but the ... data is really old news, so I don't think we'll get much sustained reaction to this," said Shaun Osborne, chief currency strategist, at TD Securities. [ID:nL273600]

A weak dollar makes metals cheaper for investors buying in other currencies.

Stocks of copper in LME warehouses fell 825 tonnes to 117,225 tonnes -- enough for just over two days of world consumption. Inventories have shrunk more than 40 percent since the beginning of January.

The apparent lack of material can be seen in the premium or backwardation of $135 a tonne for cash material over the three-month contract. That compares with a discount of about $40 a tonne at the beginning of this year.

In industry news, U.S. mining group Newmont Mining Corp. said copper output from its Indonesian unit may fall this year because of lower ore grades. [ID:nJAK182604]

Zinc fell $23 to $2,307 a tonne and lead shed $40 to $2,760. Three-months tin was at $20,450 from $20,300/20,350 and nickel gained 1.3 percent or $395 to $30,195. (Editing by Elizabeth Piper)

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