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Copper hit its highest in more than four months on the back of a rebound in manufacturing in China, the world's biggest copper consumer, boosting sentiment that has been clouded by recent poor U.S. data.

Analysts and traders also point to the continuous drop in copper inventories and the estimate of a small deficit in the copper market by the end of the year, which they believe will keep supporting the prices.

Copper for three-month delivery on the London Metal Exchange rose to $7,550 (U.S.) a tonne by 0919 GMT, after hitting $7,585 a tonne earlier, its highest since April 27 and compared with a close of $7,440 a tonne on Tuesday.

"Copper is everyone's darling," said Nick Moore, global head of commodity strategy at RBS Global Banking & Markets. "But the data flow that we had has been raising the fears of contraction if not double dip, which is a completely different argument."

U.S. Fears

Poor macroeconomic data from the United States, the world's largest economy, has clouded the outlook for global economic recovery, prompting investors to dump riskier assets at times, causing copper to remain sideways for most of the summer.

"After the run of weak data from the United States through August, the Chinese numbers were a breath of life for the start of the new month," a dealer in Perth said.

China's official purchasing managers' index (PMI) rose to 51.7 in August from 51.2 in July. The rise in the new order component to 53.1 from 50.9 was seen as especially supportive.

The headline figure compared with the median forecast of 51.8 in a Reuters poll of 10 economists but it was the 18th straight month that official PMI has stood above the threshold of 50 that marks expansion.

"My worry is that the gains may not last. Yes, China is a huge consumer, but it's less important when it comes to market sentiment. That's where the United States still dominates and if the numbers there continue to disappoint all this could sour very quickly," the Perth dealer added.

Tighter Markets

The steady fall in copper inventories, which now stand at 398,775 tonnes, their lowest since early November 2009, is a big reason why copper has been resilient in the face of poor macro data.

"We've just had six consecutive months of drawdowns on the LME, that's quite important," Mr. Moore said. "That's only the second time in 25 years that we've had a drawdown in August."

"We estimate there's just about 3.8 weeks of stocks globally," he added. Copper stocks fell nearly 28 per cent since February to below 400,000 tonnes level for the first time in 2010.

Aluminum stocks in LME warehouses have also been falling. They now stand at 4.43 million tonnes compared with a record above 4.64 million tonnes in January.

However, about 70 per cent of LME aluminum stocks are said to be tied up in financing deals, which earn banks higher returns than they would get in money markets and release cash for producers.

The premium for material to be delivered on Wednesday and bought back on Thursday - known as tom/next and often used to lend material to short positions - is now around $1.50 a tonne compared with around 41 on Tuesday. Aluminum, used in transport and packaging, was at $2,071 a tonne from $2,058 on Tuesday. Tin traded at $21,400 from $21,000, and nickel at $21,120 from $21,000.

Zinc was at $2,123 from $2,065, while battery material lead was at $2,104 from $2,070.

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