May 18, 2010, 8:34 AM EDT

By Anna Stablum

May 18 (Bloomberg) -- Copper rose in New York and London, rebounding from the biggest two-day slump since December 2008, on a weaker dollar and on reduced concern that austerity measures may threaten Europe’s economic recovery.

The U.S. Dollar Index, a six-currency gauge of the greenback’s strength, fell after five gains in a row. Concern about the effect of pared budgets yesterday helped the euro to slide to the lowest level against the dollar since April 2006. Only high-deficit countries including Spain and Portugal will be ordered to make more cuts, European finance ministers said.

“With the dollar weaker and fears regarding destabilization of the euro receding, a bit of risk appetite has crept back into the market and encouraged buying,” said Randy North, a trader at RBC Capital Markets in London.

Futures for July delivery gained 9.15 cents, or 3.1 percent, to $3.0235 a pound at 8:20 a.m. on the Comex in New York. The contract slid 9.3 percent in the prior two sessions and yesterday touched the lowest intraday price since Feb. 8. Copper for delivery in three months rose 3 percent to $6,664 a metric ton on the London Metal Exchange.

“The sharp pullback is likely to encourage buyers back into the market,” John Meyer, head of research at Fairfax IS in London, said in a report. “We expect rallies to be sold into during this period of euro pressure.”

Dollar Weakens

The dollar index dropped as much as 0.3 percent. A weaker U.S. currency makes dollar-priced metals cheaper in terms of other monies. The gauge has advanced almost 11 percent this year as LME copper has slid 9.5 percent.

Greece’s debt crisis won’t unleash a continent-wide austerity drive with the potential to tip the economy back into a recession and further undercut the euro, the ministers said. Spain this month unveiled the largest budget cuts in at least 30 years to reduce its deficit, and Portugal pledged to slash wages and raise taxes.

Copper stockpiles tracked by the LME fell 0.2 percent to 483,150 tons. Bookings to remove metal from inventories dropped 3.8 percent to 18,350 tons.

Aluminum for three-month delivery on the LME rose 2.4 percent to $2,037 a ton and lead gained 2.2 percent to $1,845 a ton. Zinc climbed 2.1 percent to $1,940 a ton, tin slipped 0.1 percent to $17,160 a ton and nickel gained 4.2 percent to $21,575 a ton.

Aluminum Inventories

Stockpiles of aluminum in LME-monitored warehouses rose for the first day in 17. They have dropped 2.6 percent this year. Between 75 percent and 80 percent of LME inventories of the lightweight metal are tied into financing agreements, Deutsche Bank AG estimates. A single party held 30 percent to 39 percent of aluminum stockpiles, according to exchange figures as of May 14.

Aluminum consumption in China, the world’s largest user and maker, may expand 20 percent this year as the economy extends a recovery, according to CBI China Co. Demand may increase from 14.02 million tons in 2009, Eric Zhang, an analyst at the Shanghai-based commodities research and forecasting company, said in a phone interview.

Immediate-delivery metal’s discount to the three-month price, the so-called contango, widened to $27.50 a ton from $25 in the previous session. It reached $22 on May 14, the lowest since July. A wider gap signals increased availability of metal.

On the futures market, one party accounts for more than 40 percent of aluminum short positions, or bets on lower prices, expiring in June, LME data from May 14 showed. The biggest bet on a price gain expiring in May accounted for over 40 percent.

--With assistance by James G. Neuger and Stephanie Bodoni in Brussels. Editors: 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: Stuart Wallace at swallace6@bloomberg.net.

Source: http://www.businessweek.com/news/2010-05-18/copper-rises-on-weaker-dollar-reduced-concern-about-austerity.html