Zinc was very weak early but rebounded to end at $0.6648/lb., down less than a penny. Aluminum was off modestly, giving up a third of a cent, to $0.6602/lb., while lead declined through most of the day, winding up at $0.6532/lb., down almost a penny and a quarter.

Copper finished for the second straight day in positive territory, as equities showed some early life and the dollar weakened.

“The downtrend in the U.S. dollar is attracting a lot of buying interest into the broader commodity complex,” said Michael Gross, futures analyst with Optionsellers.com in Tampa, Florida.

Technicians were also at work yesterday. “There was strong technical momentum from a buy signal triggered on Monday at $2.047 a pound,” said Larry Young, of Infinity Futures in Chicago.

Sounding a cautionary note was the International Copper Study Group, which said that the world copper market experienced a surplus of 86,000 metric tons in February, compared with a deficit of 61,000 tons in the year earlier period.

Stockpiles continue to dwindle. Copper inventories monitored by the LME were off 7,350 metric tons yesterday, to 341,475 tons.

In company news, Jiangxi Copper, China’s top integrated producer, said it will meet its 2009 output target of 800,000 metric tons of refined copper, despite repair work on an oxygen generator at its main Guixi smelter.

And Aluminum Corp. of China (NYSE:ACH), the nation’s biggest aluminum producer, announced that it will sell 10 billion yuan ($1.5 billion) worth of debt to help fund its acquisitions and expansion of copper assets.

Proceeds will be used to fund the previously announced acquisitions of Peru Copper and Yunnan Copper Group, and also to help fund three copper strip projects in Luoyang, Shanghai and Daye.

Source: Base Metals Mixed

Nickel staged a very strong upmove, building on Wednesday’s short session gains to close at its intraday high of $5.7417/lb., up $1.205. Zinc also just backed off its intraday high, ending at $0.5606/lb., up nearly 6 cents. Aluminum was nicely higher at $0.6937/lb., up more than 3 cents, while lead soared, adding nearly 8 cents, to $0.5048/lb.

Copper closed at a 3-week high on Friday, as investors chose to open the new year with a brightened outlook.

Or not. Many were downplaying the day’s action, and that of the last couple of days of 2008 as balancing acts. Typically, commodity index compilers recalculate the weightings for the individual commodities in their indexes at the turn of each year, and the volatility associated with that can be unconnected to any definitive market sentiment.

Jiang Mingjun, an analyst at Shanghai Oriental Futures Co., called it “window dressing,” and added that, “For at least the first quarter, we’re still going to see higher inventory levels and lower prices … Movements in the U.S. dollar will also continue to drive the entire commodities complex and hence copper prices.”

Stockpiles are certainly not suggesting any copper rally. Inventories monitored by the LME gained another 775 metric tons on Friday, to 340,550 tons, raising them to near a 5-year high.

But the metal got a little additional support from news that two key Chinese domestic smelters, Jiangxi Copper and Yunnan Copper, will lose production due to equipment malfunctions.

Meanwhile, nickel also benefited from speculation that index funds will buy more industrial metals this month during re-weightings in their benchmarks. Nickel has gained gained 36% in the past four trading sessions.

But Edward Meir, of MF Global (NYSE:MF) said recent gains “will likely recede over the course of next week when participants return from holiday and conclude that the macro landscape looks depressingly unchanged from where they left it.”

Source: Base Metals Sharply Higher

Nickel was down until mid-morning and, though it gained thereafter, failed to make up the lost ground, closing at $8.3703/lb., down more than 3¾ cents. Zinc overcame a late morning selloff to remain in the black, ending at $0.7558/lb., up a penny and a half. Aluminum wasn’t up enough in New York to overcome earlier weakness, shedding two-thirds of a cent, to $1.233/lb., while lead had a quiet day, adding a quarter-cent, to $0.753/lb.

Copper held up as investors focused on fundamentals and ignored the carnage that was consuming most of the other commodities markets, with the UBS Bloomberg Constant Maturity Commodity Index of 26 raw materials losing as much as 2.3% yesterday.

“I think copper has decoupled from the financial angle of the metal, and didn’t get hit because most of the selling was from an investment angle. We’re thinking that the supply/demand picture (for copper) is now supportive,” said Larry Young, senior trader at Infinity Futures in Chicago.

The metal has recovered well after hitting its 6-month low on Tuesday.

Traders are considering potential supply constraints after reports of reduced output during the week from BHP Billiton (NYSE:BHP) and Jiangxi Copper.

And some analysts think there’s a lot of pent-up demand in China. “You were originally seeing a pause in China’s consumption. And I think there’s an expectation that they’re not doing anything during the Olympics. But there’s also an expectation that that’s going to pick up (afterwards),” said Frank McGhee, of Integrated Brokerage Services in Chicago.

Nevertheless, the demand side of the equation continues to appear bleak. On Thursday, the eurozone reported the first economic contraction since the common currency was adopted in 1999, and yesterday it was reported that Hong Kong’s economic growth cooled to the slowest pace in almost five years.

Source: Base Metals Escape Sell-Off