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Copper prices take a dive as worries about Europe's debt crisis flare up

By Michael Bellart (Global Times)

08:16, May 30, 2012

Copper futures traded within a 1 percent range in a mixed day for commodities as closely watched yields on Spanish government debt climbed overnight, offsetting gains from recent announcements of central government stimulus measures.

The most traded copper contract on the Shanghai Futures Exchange (SHFE) slipped 0.23 percent to close at 56,080 yuan ($8,839.26) per ton. The September contract opened 0.57 percent below Monday's closing price, tracking a drop in the corresponding contract on the London Metal Exchange (LME) overnight.

The three-month LME copper contract fell 0.71 percent after the Chinese mainland markets closed Monday. The contract was trading at $7,705.50 per ton when the SHFE session ended Tuesday, up 0.38 percent on the day.

LME copper gave back its early gains late Monday after Spain proposed recapitalizing Bankia, the country's fourth largest lender, with government debt.

Following the announcement, the yield on Spain's 10-year government bonds rose 16 basis point to 6.42 percent, a seven-month high, according to a note written by ANZ commodity analyst Natalie Robertson and senior metals strategist Nicholas Trevethan.

More troubling, the spread between yields of Spanish debt and German government bonds, considered the benchmark for zero credit risk, widened to more than 5.06 percent - a eurozone record, the note said.

On the other side, news out of China over the last few days pointed to increased government support for parts of the economy, giving metals prices a boost. The announcements included a "cash-for-clunkers" program, in which the government would offer rural residents subsidies for new vehicle purchases, especially when buyers trade in older vehicles, according to local media reports.

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