NEW YORK/LONDON (Reuters) - Copper rose to fresh four-month highs in choppy trade late on Thursday after the U.S. Federal Reserve announced another aggressive stimulus plan to buy mortgage-related debt and other assets until the outlook for jobs improves.
In a significant shift in monetary policy, the Fed said it would buy $40 billion of mortgage debt per month and will continue to purchase those and other assets until the weak employment picture shows marked improvement.
"If the outlook for the labor market does not improve substantially, the committee will continue its purchase of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability," the Fed said in a statement.
Copper's initial reaction to the Fed's latest easing efforts was volatile, swinging above and below unchanged levels before extending its gains to a new four-month high.
"The FOMC meeting did not disappoint. There was significant new accommodation. It clearly shows that they are going to continue to write big checks, so to speak," said Bill O'Neill, partner of LOGIC Advisors in Upper Saddle River, New Jersey.
"But the Fed is saying by this move and by this statement that the economy is very weak, with a particular focus on the labor market.
"You could make the argument that chasing copper up here is risky based on the economic situation."
COMEX copper for December delivery settled up 1.75 cents at $3.71 per lb, but pushed higher in late electronic trade to a new four-month peak at $3.7465.
On the London Metal Exchange (LME), three-month copper ended down $21 at $8,075 a metric ton (1.1023 tons) before rallying in after-hours business to $8,200.50, its priciest since May 8.
Since last Friday, copper has broken above the key $7,800 ceiling that had contained previous rallies for months, and broke out above the $8,000 mark in a burst of optimism over $157 billion in infrastructure spending planned in top metals consumer China and fresh measures to tackle the euro zone debt crisis.
"Copper still has the China factor, but we're still in a weak economic cycle. I wouldn't be buying things as related to any sudden optimism for industrial demand," LOGIC Advisors' O'Neill said.
Earlier in the day, U.S. data reinforced the Fed's employment-focused easing action. U.S. jobless claims rose to 382,000 last week, versus consensus expectations for a rise to 370,000.
The combination of higher prices and a rebound in open interest on the LME in recent sessions shows that investors have been establishing new long positions, although some of them were taking profits, traders said.
Open interest in copper rose by another 4,664 lots to 248,479, bringing the gain since the start of the month to 13 percent after touching the lowest levels since January 2007.
With the Fed meeting now in its rear view mirror, the market's focus will likely return to China, where spot demand has been lackluster and where its infrastructure program would take time to filter through to metal purchases.
In China's physical copper market, spot cargoes were trading about 180-250 yuan lower than the ShFE prompt September month contract, reflecting sluggish demand from downstream industries.
In other metals, three month tin bucked a broader uptrend, sliding 1.21 percent to $20,350 a metric ton after further signs of supply resuming from Indonesia.
Indonesia's tin smelters have all restarted operations after a temporary shutdown halved output from the world's top tin exporter last month, the Indonesia Tin Association said.
In zinc, the premium of three-month metal over cash widened to $31 a metric ton on Wednesday evening, compared with $25.75 the previous session and about $5 in mid-August. This was due to Chinese investors liquidating long positions against arbitrage plays and funds rolling their positions forward, Sucden Financial said in a note.
Three-month zinc futures ended up by a percent to $2,036 a metric ton.
Aluminum closed up 2.04 percent at $2,102 a metric ton and the Sept-Oct spread remained tight at a backwardation of as much as $20, equaling Wednesday's levels.
Aluminum profile manufacturers in China's Guangdong have reported a rise in orders this month, after seeing their order books decline over the past 3-4 months, which analysts and industry sources are pointing to as a sign of recovering demand in China.
Additional reporting by Maytaal Angel in London and Carrie Ho in Shanghai; editing by James Jukwey and Jim Marshall