Risk aversion drove copper to a three-week low on Monday as investors fretted about the potential impact of fraud charges against Goldman Sachs, Wall Street's most influential bank and a leading commodities player.
Also hitting copper was a rising U.S. currency that made dollar-priced metals more expensive for non-U.S. investors.
Commodity and equity markets started falling on Friday after the U.S. Securities and Exchange Commission charged Goldman Sachs with fraud over its marketing of a debt product tied to subprime mortgages that was designed to fail.
"This could be the tip of the iceberg. It would be no surprise the other Wall Street and European banks having done the same," said Robin Bhar, an analyst at Credit Agricole.
Three-month copper on the London Metal Exchange slid to $7,680 (U.S.) a tonne in official rings from $7,763 on Friday.
The metal, used extensively in power and construction, touched a session low of $7,610.25, its weakest since March 29 and following a 2.3 per cent loss on Friday. Copper prices hit a 20-month high above $8,000 a tonne earlier this month.
Mr. Bhar said investors were worried about what new regulations might be imposed on banks.
"A lot of the price increases from 12 months ago have been due to risk taking," he said. "Any measures to curb the banks' risk-taking will have an impact."
Highlighting risk aversion was Friday's 15.5 per cent surge in the CBOE Volatility index, Wall Street's fear gauge.
China Eyed
Investors are also concerned about the demand outlook from China, as the world's top consumer of base metals reins in speculation in its red-hot property market.
Chinese buying - which has been a crucial support for base metals in a downturn that crippled global demand - helped copper surge 140 per cent in 2009.
On Saturday, China's cabinet laid out more detailed measures to keep the property sector in check.
"Chinese buying of metal is very important, without that the supply-demand balances will shift negatively," Charles Kernot, an analyst at Evolution Securities, said.
"There might be a natural slowdown," he said of Chinese buying. "With metals prices where they are, the Chinese might be more intent on using their internal stockpiles rather than buying more on the international market."
Signalling a potential improvement in demand, however, stocks of copper at LME warehouses have declined in recent weeks. Stocks last fell 1,525 tonnes to 507,875.
Aluminum traded at $2,368 in rings from $2,435, zinc was at $2,364 from $2,423 and lead was at $2,206 from $2,261. Tin traded at $18,675 from $19,200.
Traders were keeping an eye on a dominant position holding 50-80 per cent of LME lead. The battery material, down 9 per cent year-to-date, is the worst performing base so far in 2010.
"They may well have a genuine reason, a physical commitment," Mr. Bhar said of the holder of the dominant position.
"But it does seem strange that they need to have such a hold now. April is a traditionally weak season for lead. It doesn't make sense."
Nickel, not traded in rings, was quoted at $26,550/26,600 from $26,705. Nickel has jumped more than 40 per cent year-to-date, as falling stocks have triggered market tightness. Investors are also watching a dominant position holding 50-80 per cent of LME nickel.