Metals sink on China, Europe growth concerns as U.S. dollar firms

By Marius Zaharia

LONDON (Reuters) - Metal prices hit multi-year lows on Friday as weaker-than-expected data from China and the euro zone raised concerns about global growth, but the U.S. dollar rose on the prospects of a Federal Reserve interest rate hike.

Copper fell to its lowest level since 2009 after a survey showed Chinese manufacturing contracted by the most in 15 months in July as orders shrank. Worries grew over demand in the world's biggest metals consumer with stockpiles mounting up.

The flash Caixin/Markit China Manufacturing Purchasing Managers' Index (PMI) contracted for the fifth straight month, and faster than economists polled by Reuters had estimated.

Euro zone business activity also started the second half on a less secure footing than expected, hit by Greece's near-bankruptcy. Markit's flash PMI fell to 53.7 this month from June's four-year high of 54.2. A Reuters poll had predicted a more modest dip to 54.0.

While economies looked weaker in Europe and Asia, better-than-expected U.S. jobless claims kept the Federal Reserve on track for a rate increase in coming months.

The U.S. dollar was 0.4 percent higher against a basket of currencies, trading at 97.489 (DXY). U.S. stock futures pointed to a slightly higher open on the Wall Street.

"What a conundrum we face: Commodities are shouting that the global economy is deteriorating, key emerging markets are already seeing major volatility, and yet the world's most important central bank is close to tightening monetary policy," Michael Every, head of financial market research for Asia at Rabobank.

In a busy day for corporate updates on Friday, BASF (DE:BASFn), the world's largest chemicals firm by sales, slightly missed expectations with a 2 percent rise in operating profit, with profits of French food group Danone (PA:DANO) also falling short of expectations.

British telecom firm Vodafone (L:VOD) rose 3.7 percent after results that showed improvements across major markets in Germany and Britain. French defense group Thales (PA:TCFP) was up 8 percent, hitting an all-time high after its results.

The pan-European FTSEurofirst 300 (FTEU3) hit a one-week low early in the day , but quickly rebounded to trade 0.2 percent higher at 1582.22. Euro zone bond yields fell. [GVD/EUR]

"Historically the ECB (European Central Bank) has said it would do whatever it takes to save the euro, it has launched quantitative easing to support the euro zone and investors have faith that they will continue to be supportive if there are signs of weakness," said Alastair McCaig, market analyst at IG.

The Australian dollar, often used as a liquid proxy for China trades, hit a six-year trough of $0.7269 . Slowing Chinese growth means less demand for commodities such as iron ore, one of Australia's chief exports. The recent decline in a wide range of commodities, including oil, has weighed on currencies like the Canadian and Australian dollars.

London and Shanghai nickel contracts both fell 1.3-1.5 percent.

China looks set to further reduce interest rates and the amount of cash its banks must hold as reserves to try to keep its economy growing at 7 percent this year, which would be the slowest pace in a quarter of a century, a Reuters poll showed on Thursday.

The euro dipped fell 0.3 percent to 1.0944 after the European data, still well above last week's 3-month low of $1.0808.

Gold slid more than 1 percent to its lowest since early 2010 on Friday, on course for its biggest weekly loss in nine months. [GOL/]

Oil prices neared four-month lows. Brent crude was down 35 cents at $54.92 a barrel, having hit an intraday low of $54.80, its lowest since early April. U.S. crude for September delivery rose 12 cents to $48.57 a barrel. [O/R]

Brent has lost nearly 13 percent in July, its largest one-month fall since a near 19 percent loss in January.