By Anna Stablum

March 8 (Bloomberg) -- Copper rose for a second session in New York and London as the dollar declined two days in a row, boosting demand for metals as an alternative investment.

The U.S. Dollar Index, a six-currency gauge of the greenback’s strength, fell as much as 0.4 percent, making dollar-priced metals cheaper to other currency holders.

The euro rose on speculation that wealthier European nations will rescue Greece if its budget deficit crisis worsens, boosting demand for higher-yielding assets.

Prices were higher “on the back of the currency,” said Daniel Major, an analyst at RBS Global Banking & Markets in London, by phone. The weaker dollar gave “base metals a little bit of support,” he said.

Copper for May delivery gained 2.9 cents, or 0.9 percent, to $3.4465 a pound on the New York Mercantile Exchange’s Comex unit at 8 a.m. The contract advanced 4.1 percent last week. Copper for three-month delivery rose 0.5 percent to $7,581 a metric ton on the London Metal Exchange.

Stockpiles of copper in LME-monitored warehouses fell for a fourth day to 541,575 tons. Metal booked for delivery, or canceled warrants, fell for a third consecutive day, down 4.4 percent at 29,625 tons. The bookings have surged more than 10- fold this year.

“We are still pretty cautious on the price outlook into the second and third quarter as we don’t think the fundamentals justify where prices are at the moment,” RBS’s Major said.

This year’s rise in copper prices, up 2.5 percent, has been driven mostly by appetite for alternative assets, rather than by demand and supply factors, Major said.

‘Risk Appetite’

“If we do get a shift in risk appetite and we start to get a stronger dollar, the fundamentals will not be sufficiently supportive to keep prices where they are,” he said.

In Germany, copper’s third largest user after China and the U.S., industrial production rose in January, the Economy Ministry in Berlin said today. Production rose 0.6 percent from December, figures showed. Economists had forecast a 1 percent gain for January, a Bloomberg survey showed.

Nickel for three-month delivery on the LME gained 1.1 percent to $22,650 a ton. The metal, with two-thirds used in stainless steel, reached $23,040 a ton on March 4, the highest price since June 19, 2008, and it has gained 22 percent this year. Stockpiles in LME-monitored warehouses have fallen 3.8 percent to 160,224 tons from 166,476 tons on Feb. 8, the highest since at least 1979.

‘Major Recovery’

“There has been a major recovery in stainless steel orders and production this quarter, initially starting in China but now spreading to the rest of Asia, Europe and the USA,” Jim Lennon, a Macquarie Bank Ltd. analyst in London, said today in a report.

“We are forecasting that world stainless steel production could rise 9 percent quarter-on-quarter in the first quarter 2010 and a massive 50 percent year-on-year from the extremely depressed levels of early 2009,” Lennon said.

Demand for nickel, with stainless steel scrap in short supply, could “continue for some time,” Lennon said. This is because stockpiles in LME warehouses are not immediately available to the market because of location, type of nickel and some is being tied up in financing deals, Lennon said.

“In nickel, the market now appears to be in small deficit between supply and demand, supporting a recovering price trend.”

Lead advanced 1.9 percent to $2,270 a ton. Supplies of lead from China, the world’s largest producer, will decline as the government raises environmental standards for plants, said Hunan Nonferrous Metals Corp.. Demand for the battery ingredient will keep rising because of consumption by the auto industry, said He Renchun, president of China’s largest producer of zinc, in an interview today. The company owns lead mines.

Environmental Standards

“The government will probably raise environmental standards for lead producers, which will reduce supplies and boost prices,” said He.

Aluminum rose 1.1 percent to $2,253.50 a ton and zinc gained 1.4 percent to $2,382.25 a ton after reaching $2,410.75, the highest price since Jan. 22. Tin advanced 0.8 percent to $17,551 a ton.

--With assistance by Jana Randow and Christian Vits in Frankfurt. Editors: John Deane, Dan Weeks.

To contact the reporter on the story: Anna Stablum in London at astablum@bloomberg.net.

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net.

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