Premium for cash over 3-month copper contract narrows

* LME copper stocks down more than 50% since May (Updates prices)

By Pratima Desai

LONDON, Aug 5 (Reuters) – Copper prices rose on Wednesday as expectations of stronger economic growth and demand due to central bank and government stimulus, a lower dollar and sliding stocks boosted sentiment.

Benchmark copper on the London Metal Exchange traded up 0.6% at $6,490 a tonne at 1601 GMT. Prices of the metal, used widely in the power and construction sectors, hit a two-year high of $6,633 a tonne in the middle of July.

“The money pumped into the financial system by central banks and fiscal stimulus packages from governments mean a recovery,” said Quantitative Commodity Research analyst Peter Fertig.

“Chinese demand looks strong, but we also need to see an improvement in the rest of the world. Political tension between the United States and China is a risk factor.”

DEMAND: China accounts for nearly half of global copper consumption estimated at around 24 million tonnes this year.

China’s factory activity expanding at the fastest pace in nearly a decade in July has supported prices of industrial metals in recent days, as has an improvement in manufacturing activity in the euro zone and the United States.

DOLLAR: A lower U.S. currency makes dollar-denominated metals cheaper for holders of other currencies, which could mean higher demand. This is a relationship used by funds to generate buy and sell signals from numerical models.

INVENTORIES: Copper stocks MCUSTX-TOTAL in LME registered warehouses at 122,450 tonnes are at their lowest since the middle of January and down more than 50% since May.

Also reinforcing the idea of a tight LME market are cancelled warrants — metal earmarked for delivery — at nearly 60% of total copper stocks.

SPREADS: However, the narrowing premium for the cash over the three-month copper contract CMCU0-3 suggests the flow of metal leaving LME warehouses may soon come to an end.

OTHER METALS: Three-month aluminium slipped 0.3% to $1,765 a tonne, zinc gained 2.0% to $2,387, lead rose 1.9% to $1,917, tin added 0.8% to $17,915 and nickel climbed 2.1% to $14,415. (Reporting by Pratima Desai; editing by David Evans)