By Daniel Magnowski
LONDON (Reuters) - London copper futures rose more than 2 percent on Friday, following a surge in a Chinese market that shrugged off another interest rate rise on expectations of strong demand, analysts said.
Copper on the London Metal Exchange (LME), often seen as a reliable indicator of real economic activity, was up $160 from Thursday's close at $6,690 per tonne by the end of the official open outcry session.
Earlier, prices in Shanghai rose 4 percent on the expectation that even the sixth increase in Chinese rates this year would not lessen the country's appetite for metals.
"The LME is following the Asian markets, where Shanghai went limit-up," said UBS analyst Robin Bhar, explaining how prices rose the maximum ratio allowed by the Shanghai Futures Exchange.
Traded volumes on the LME were low, with investors unwilling to make big moves in the run-up to the Christmas holidays.
"Liquidity has almost dried up, and people are more concerned about book-squaring rather than taking on any risk," Bhar said.
In such markets, prices can easily be shifted.
"Trading conditions are thin, and it does not take much to induce a rather sizable move either direction," Edward Meir at MF Global said in a report.
China raised interest rates on Thursday, the latest in a series of measures to quell inflation and prevent the economy from overheating, though this did not dampen sentiment in the metals markets.
Expectations of continued strong demand for metal in China, the world's biggest user, is crucial to copper prices that have been hit, along with other assets, by the credit crunch and fears about the severity of an economic slowdown.
"Even assuming a further slowing of U.S. metals demand, the strength of consumption in other parts of the world means that supply will continue to struggle keeping up," Barclays Capital said in a note.
"Inventory levels will stay low and in a number of markets, including copper, nickel and tin, inventory levels early in 2008 are forecast to fall to fresh lows in the current cycle."
At current levels, copper prices are around 5 percent higher than at the start of three year, but more than $2,000 below the peak they hit in 2006.
Lead was untraded but rose $23 to a quoted $2,625/2,626 per tonne after surging in the previous session on news that refiners in China had shut down more than 400,000 tonnes of lead refining capacity.
Aluminium was up $8 at $2,415 per tonne, nickel was up $600 at $26,850 per tonne, zinc was up $60 at $2,370/2,390 per tonne and tin was up $300 at $16,500 per tonne.
In industry news, the world's biggest primary aluminium producer, Russia's United Company RUSAL, said it would buy a 25 percent stake in compatriot miner Norilsk Nickel.
The move is an initial step towards the creation of what would be Russia's first diversified mining firm on a scale to rival world leader BHP Billiton.
On the London stock market, BHP shares were up 2.2 percent and Anglo American up 3 percent as part of a broader rally.
