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MARKETS (Click on the sections below to jump to the full story)BASE METALS: Copper hit a near three-week high on Wednesday asstrong physical and Chinese buying coupled with falling inventoriessupported prices, but gains were capped by the uncertain outlook

for economic growth. By 0951 GMT, copper for three-month delivery

on the London Metal Exchange traded at $6,761 a tonne from $6,637

at the close on Tuesday and compared with a session high at

$6,795. On Tuesday, new U.S. home construction hit its lowest level

in eight months in June, further evidence the economy lost momen-

tum in the second quarter. "Everything pointed towards some weak-

ness but we got the opposite," said Daniel Brebner, analyst at

Deutsche Bank. "The key thing is the Chinese buying interest re-

mains decent -- so there is arbitrage (interest)."

PRECIOUS METALS: Gold held near $1,190 an ounce in Europe onWednesday as a brief rally in the metal ran out of steam after well-

received U.S. corporate earnings reports boosted appetite for assets

seen as higher risk, like equities. A 6.1-tonne fall in holdings of the

world's largest gold-backed exchange-traded fund, the SPDR Gold

Trust , on Tuesday, their biggest one-day decline since December,

indicates waning investment demand for the metal, analysts said.

Spot gold was bid at $1,190.55 an ounce at 0931 GMT, against

$1,191.40 late in New York on Tuesday. U.S. gold futures for August

delivery eased $1.40 an ounce to $1,190.30. "It looks like from the

investors' side, gold is not the favourite it was until a few weeks

ago," said Commerzbank analyst Daniel Briesemann.

FOREX: The euro slipped against the dollar on Wednesday after aweak auction of Portuguese debt highlighted the fragility of the euro

zone banking sector ahead of European bank stress test results later

in the week. Portugal sold 1.25 billion euros in 12-month Treasury

bills, but the average yield more than doubled from the previous

sale, while the bid-to-cover ratio was much lower. The euro hit the

day's low after the auction, as traders booked profits on the single

currency's rally to a 10-week high, while investors awaited testimony

from Federal Reserve Chairman Ben Bernanke.

ALUMINIUM

China's Chalco, Europe's Sapa to form aluminium JVCOPPER POLL-Robust demand to push copper into deficit

in 2010 China June refined copper imports fall 24.2 pct First Quantum copper output falls in second quar-

ter Zambia's Kansanshi H1 copper output declinesNICKEL/STEEL

POLL-Strong stainless demand means nickel defi-cit in 2010

Vale Voisey's strike talks break off over bonus POSCO to hike stainless steel production in Viet-

nam Brazil iron miners see Q4 spot price bounce Iron miners may move to monthly pricing, eye

swaps China sees gold lining in Australia iron ore pro-

jectsZINC/LEAD China lead output may see rare fall this year POLL-Lead market to tip into small deficit in 2011 Exxaro says no talks yet with Vedanta over mine

Doe Run Peru creditors reject settlement proposalTIN/MINOR Japan Q3 ferrochrome price down 6 cents from Q2 Greenland firm sees rare earth metals potential

CHART OF THE DAY (Click on the chart for full-s ize image)

CLICK HERE TO SEE UPCOMING EVENTS FOR THIS WEEK

POLL-Surfeit of metal to hit zinc price perform-ance

ANALYSTS VIEW-Reuters base metals poll2010/2011

US housing starts fall, permits offer ray of hope EXCLUSIVE- German engineering sector hikes

2010 outlook BHP iron ore output at record, cautious on out-

look S.Korea buys copper, nickel for Sept arrivals

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FEATUREMETALS INSIDER-Analysts poll highlights H2 slowdown fearsReuters today publishes its biannual base metals poll, a chance to takethe collective pulse of the global analyst community.As ever the poll captures a wide divergence of views straddling the bull-bear spectrum but if it's possible to talk about a consensus view, it comesin the form of the median price forecast for each of the major LMEmetals.Andy Home is a Reuters Columnist The opinions expressed are his own

Click here to read the rest of his column

METALS INSIDERCOMPILED ON WEDNESDAY, JULY 21, 2010

No Major Date Releases

TODAYS EVENTS

TRADING PLACES Goldman tumbles on commodities but rebound

http://graphics.thomsonreuters.com/F/07/CMD_MTLPL0710.html

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METALS INSIDER-Analysts poll highlights H2slowdown fears- Andy Home is a Reuters Columnist. The opinions ex-pressed are his own -

By Andy Home

LONDON, July 20 (Reuters) - Reuters today publishes itsbiannual base metals poll, a chance to take the collectivepulse of the global analyst community.

As ever the poll captures a wide divergence of views strad-dling the bull-bear spectrum but if it's possible to talkabout a consensus view, it comes in the form of the medianprice forecast for each of the major LME metals.

And this time around the median price forecasts are hardlybrimming with bullish enthusiasm for the industrial metalscomplex, at least for the rest of this year. Rather, they cap-ture the growing concern about the sustainability of theglobal recovery.

PRICES MAY HAVE ALREADY PEAKED

Comparing the current median price forecasts with the lastpoll in January largely tells us what we already know, asanalysts have factored first-half price performance intotheir full-year average forecasts.

LME metals endured a wretched price performance in thesecond quarter of this year. But some fared decidedly bet-ter than others, as shown in the next two graphics.

No surprise then that the median forecasts for lead andzinc have been lowered since the January poll to reflect the"ugly sisters'" underperformance within an underperform-ing pack.

Equally unsurprisingly, those for nickel and tin have beenraised, reflecting these two metals' relative outperfor-mance in the first half of the year.

The median aluminium forecast is unchanged at $2,094per tonne, basis LME cash (the same basis for all the fore-casts). Analysts are no keener on the light metal now thanthey were in January, largely because the market is stillexpected to be in major oversupply. Indeed, the medianassessment of that surplus has crept up to 1.20 million ton-nes from 1.05 million tonnes at the start of the year.

The median forecast for copper has been shaved by a mar-

ginal 2.8 percent since January.More interesting is to compare the latest median forecastswith actual average price performance in the first half ofthis year.

On this basis only tin comes out as a clear winner. The me-dian forecast is now $17,548 per tonne, up both 7.7 percenton the January poll and up 0.3 percent on the actual aver-age in the first six months of 2010. Underlying that bull

view is a shift of median view about market balance from2,000-tonne surplus in January to 7,500-tonne deficit now.

The median forecast for every other metal for 2010 as awhole is below the actual average price in the first six

months. The "consensus view" among analysts seems tobe that while industrial metals prices will pick up fromtheir current summer-doldrums levels, this year's highsmay already be passed.

A case in point is nickel, which along with tin was the starperformer in the first part of the year. The median averageforecast is now $20,225 per tonne in calendar 2010, down4.7 percent from an average of $21,213 per tonne in H12010.

That's despite a median view that the nickel market is go-

ing to record a 32,000-tonne deficit this year. Back in Janu-ary the median expectation was for a 15,000-tonne sur-plus. But reduced expectations for prices in the second halfof the year tally with a growing consensus that thestainless steel sector, so important to nickel usage, will notmatch its first-half strength in the coming six months.

DOWNSIDE RISKS ACCUMULATE

Perhaps the most interesting shift of opinions, though, re-lates to copper. The median forecast is now for the redmetal to average $6,878 per tonne this year, comparedwith an actual average of $7,130 in the first half.

Not that there's been any deterioration in analysts' view of

copper's underlying dynamics. Quite the opposite in fact!The median forecast is for copper to record a supply-demand surplus of 41,000 tonnes, lower than the 115,000-tonne surplus expected in January.

In other words analysts have become more bullish aboutcopper's fundamentals but less bullish about the price out-look in the second half of 2010.

This seems to capture well the overall downbeat view ofthe next six months, in keeping with copper's bellwetherstatus.

What is bothering analysts?

Few yet view a double-dip global recession as anythingmore than an outlier in the range of possible macroeco-nomic outcomes. But the headwinds created by the tail ofthe economic storm are still multiple.

Nic Brown, analyst at Natixis, summed up well what is fur-rowing the collective analytic brow: "For our baseline sce-nario, we remain optimistic on the outlook for base metals,but our lower price forecasts are a reflection of the signifi-cant downside risks posed by: Risk of European sovereigndefault, and/or impact of excessive fiscal austerity; Risk ofUS double-dip; Risk of Chinese economy slowing by morethan intended; Potential impact on raw material demandfrom Chinese push toward greater energy efficiency and

shift to higher value-added output."That's a lot of risk! And Brown's list helps explain the cur-rent disconnect between copper's positive micro dynamicsand its laboured price performance. After all, LME copperstocks are still falling, China is still importing hugeamounts of metal by any historical yardstick and the redmetal's supply-side remains as problematic as ever. Yet theprice is struggling to hold its own around $6,600 per tonnelevel.

Barclays Capital described this micro-macro price dynamicin its latest research report thus: "The interaction of weaksentiment and strong data has produced counterintuitiveoutcomes in some markets. The more demand has speededup, the more prices have reflected fears that it will slowdown."

(Continued on page 3)

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Researchers at the bank, which continues to favour copperamong the LME metals, go on to suggest that "the mainstorm has certainly passed, but it has left in its wake somepotential for periods of unsettled weather. After two yearsof often volcanic price change and economic turbulence,there might not be an instant re-adjustment to the notionthat normality can be hard graft and occasionally slow go-ing in specific markets."

Today's Reuters base metals poll amounts to a resounding"Hear! Hear!" to that statement.

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POLL-Surfeit of metal to hit zinc price perform-anceBy Pratima Desai

LONDON, July 20 (Reuters) - Zinc's price performance thisyear is likely to be worse than previously expected as the

market factors in a deluge of supply for the metal used togalvanise steel, a Reuters survey showed.

The survey of 55 metal analysts taken over the last fourweeks showed copper was expected to average $6,878 atonne this year from $7,077 a tonne in the January poll. Foraluminium the number was an unchanged $2,094 a tonne.

For lead the average forecast fell to $1,996 a tonne from$2,252 in January. Nickel was seen higher at $20,225 atonne from $18,186 and tin at $17,548 from $16,294.

Zinc prices are now expected to average $2,050 a tonnethis year from $2,293 a tonne in January. Cash zinc wasaround $1,800 on the London Metal Exchange on Tuesday.

"I'm a little concerned about zinc," Justin Lennon, analystat Mitsui Bussan Commodities said.

"The price has brought a lot of production back online inzinc and supply has gotten ahead of demand. There alsoseems to be some expansion in zinc production out of In-dia."

Zinc prices are up more than 15 percent since early Junewhen a stronger dollar and escalating worries about conta-gion from the debt crisis in the euro zone hit confidence.

The price gain meant plans to cut output have beenshelved by many producers, leading to higher forecasts of

the surplus in a market estimated at around 12 million ton-nes this year.

The survey showed the zinc surplus this year could hit348,000 tonnes versus 209,500 tonnes in January.

"We've had a large build up of inventory over the past yearor so and what we see in terms of visible stocks is just thetip of the iceberg," said Stephen Briggs, analyst at BNPParibas.

Briggs was referring to stocks in warehouses monitored bythe Shanghai Futures Exchange where inventories stand atmore than 248,000 tonnes and in LME registered ware-houses where the number is 618,925 tonnes -- near the

five-year high seen in May.However, helping support zinc market sentiment are fi-nancing deals, which have tied up a significant amount ofmetal in LME warehouses. These deals are designed torelease cash for producers and earn higher returns forbanks than is possible elsewhere.

DOUBLE DIGIT GROWTH

Prices of battery material lead are expected to see a loweraverage this year than previously, but the number is stillhigher than current levels around $1,800 a tonne.

Next year lead is expected to average $2,178 a tonne.

Analysts expect falling stocks in LME warehouses, down at185,775 tonnes from eight-year highs of 193,000 tonnes hitmid-June, and stronger activity in the auto sector to help.

But doubts remain.

Global auto sales tumbled 13 percent last year, but automakers and their suppliers have benefited this year fromgovernment support.

"Although global automobile production is forecast togrow at double-digit growth rates, new equipment batter-ies only account for 14 percent of global lead demand,"

said Catherine Virga analyst at CPM group.

"This small market share may in turn contain growth inlead demand -- roughly 3.5 percent per annum -- over thistwo year period." She added: "Unreported stockpiles ofnickel in China are helping to keep the apparent nickelmarket very tight."

Nickel is expected to average at $21,111 a tonne next yearfrom January's $19,069, aluminium at $2,150 a tonne from$2,226, tin at $18,550 a tonne from $17,500 a tonne.

Cash nickel was at $18,730, aluminium at $1,950 and tinat $17,850.

Copper used as a gauge of economic activity is forecast toaverage $7,496 a tonne next year from $7,500 in Januaryand compared with the LME cash price of $6,500 on Tues-day.

"Copper mine production growth is likely to struggle,which suggests there will have to be large draws in metalinventories to keep up with even a modest rate of demandgrowth," said Gayle Berry, analyst at Barclays Capital.

"As such we see the potential for copper prices to reach anew record high next year."

Three-month copper on the LME hit a record $8,940 atonne on July 2, 2008.

ANALYSTS VIEW-Reuters base metals poll2010/2011LONDON, July 20 (Reuters) - Following are a selection ofanalysts' comments on the outlook for copper, aluminium,zinc, lead, tin and nickel prices gathered as part of theReuters base metal price survey for 2010 and 2011.

The poll of more than 50 analysts was carried out over thepast 4 weeks.

To watch a Reuters Insider television interview withDeutsche Bank's Director of Commodities Research DanielBrebner and Reuters Base Metals Columnist Andy Home,click: http://link.reuters.com/hev38m

OVERVIEW

ROBIN BHAR, ANALYST, CREDIT AGRICOLE

"We do not expect to see a double dip for major economiesalthough we do forecast a growing divergence in growthboth within the Eurozone and between the Eurozone andUS economies.

Our forecasts do not predict a fast pace of recovery in theG3 economies, with a likely sub-par pace of growth ex-pected.

Nonetheless, we do not envisage a return to recession.

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We do not expect a double dip in the US, and we expectChina to decelerate only gradually. Global demand forAsian products is likely to remain resilient."

JPMorgan

"The 2011 period ought to facilitate a trend move higher in

prices that coincides with a realisation that offtake remainsrobust and major downside risks have not been realised.

Whereas global GDP (gross domestic product) often is thedetermining influence on demand for the wider commoditygroup, for the industrial metals it is -- not surprisingly --industrial production that is the dominant influence on thedemand side of the balance sheet.

JPMorgan analysts look for global industrial production in2010 to be a very strong 9.2 percent, slowing to around 5.3percent in 2011, which will drag metals specific demanddown with it (the historical `beta' of metals demand to in-dustrial production on a global basis ranges from 0.8 incopper to 1.8 in aluminium, with most clustered around the1.0 area).

STAR FUTURES

"The main factors in metals market in the next two yearswill be the performance of the macroeconomy and the in-flation issue. Fund and speculative buying increases theliquidity in the market."

ZHU BIN, ANALYST, NANHUA FUTURES

"The change in the dollar value will also influence metalsprices. Concern on inflation after governments issued a lotof money to stimulate economic recovery is another factorto keep an eye on. The financial market itself is not ra-

tional. Once the market forms a self-enforcing scheme,prices are likely to go to extremes."

NIC BROWN, ANALYST, NATIXIS

"For our baseline scenario, we remain optimistic on theoutlook for base metals, but our lower price forecasts are areflection of the significant downside risks posed by: Riskof European sovereign default, and/or impact of excessivefiscal austerity; Risk of US double-dip; Risk of Chineseeconomy slowing by more than intended; Potential impacton raw material demand from Chinese push toward greaterenergy efficiency and shift to higher value-added output.We expect global growth to be maintained, but it will be

slightly less robust than in our previous outlook.Many developed countries will continue to struggle, andChinese growth may be slightly less impressive than previ-ously expected, but growth in demand for base metals willincreasingly be supported by other developing countries."

ALUMINIUM 2010 2011

Mean $2,082 $2,223

Median $2,094 $2,150

No of F'casts 53 51

Aluminium was around $1,950 a tonne.

NIC BROWN, ANALYST, NATIXIS

"Aluminium demand will continue to improve, but poten-tial supply remains very high, capping any price rally. Wedo not anticipate a major rise in energy prices that wouldpush costs of production higher."

DAN SMITH, ANALYST, STANDARD CHARTERED

"Overall, aluminium will be the weakest performer. There'sfar too much inventory around, and a lot of the metal is tiedup in financing deals, which won't last the whole year."

MSR PRASAD, ANALYST, WAY2WEALTH

"New low cost supply to the tune of +4 million tonnes tocome online by 2011-12, however lower rate of productiongrowth at matured economies mean slower pace of supplyadditions."

GORAN DJUKANOVIC, ANALYST, CENTRAL BANK OFMONTENEGRO

"The aluminium industry has been in significant overca-pacity over the past few years and that trend will continueover the next 4 to 5 years at least. With normal demandgrowth of 5 to 6 percent per year, the world needs only 2 -2.5 million tonnes annually of additional output to meetdemand."

ZINC 2010 2011

Mean $2,048 $2,267

Median $2,050 $2,206

No of F'casts 51 48

Zinc was trading at $1,800 a tonne.

GAYLE BERRY, ANALYST, BARCLAYS CAPITAL

"We have downgraded our price expectations for zinc in2011 on the basis of stronger refined production.

That said, we see potential for significant upside to priceslater next year and onwards as mine supply begins to

tighten."

CANACCORD GENUITY

"We expect the global zinc market to remain in surplusuntil 2013, and we would not expect to see higher zincprices unless Teck's 500,000 tonnes per annum Red Dogmine experiences substantial permit-related disruption."

STANDARD BANK

"In zinc, it is the concentrate market that is showing signsof tightness at the moment. This looks to be the first stagein a multi-year trend of falling TCs and deteriorating con-centrate availability, which will begin to impact on the re-

fined market over the coming months."MICHAEL WIDMER, ANALYST, BOA MERRILL LYNCH

"Lead demand has held up better than consumption of theother metals during the recession. This has been heavilyinfluenced by relatively steady offtake from replacementbatteries, which account for 50 percent of all lead usage.

Lead mine supply is not abundant, so prices should re-spond to the better demand backdrop. We forecast a sur-plus for 2010."

LEAD 2010 2011

Mean $1,995 $2,185

Median $1,996 $2,178

No of F'casts 40 37

Lead was around $1,800.

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JPMORGAN

"Lead has seen the lows for the year ... tighter availabilityin China to support prices around $1700 a tonne. Lookingfor prices to look above $2000 by year end but next 3months remain choppy as risk aversion continues.

Looking for prices to trend higher over 2011, but upsidecapped overall by abundant resources and likely strongerChinese lead concentrate/refined supply above $2200."

MICHAEL WIDMER, ANALYST, BOA MERRILL LYNCH

"Lead demand has held up better than consumption of theother metals during the recession. This has been heavilyinfluenced by relatively steady offtake from replacementbatteries, which account for 50 percent of all lead usage.

Lead mine supply is not abundant, so prices should re-spond to the better demand backdrop. We forecast a sur-plus for 2010."

CATHERINE VIRGA, ANALYST, CPM GROUP

"In 2010 and 2011 lead demand is reflective the rebound inglobal automobile production.

Although global automobile production is forecast to growat double-digit growth rates, new equipment batteries onlyaccount for 14 percent of global lead demand.

This small market share may in turn contain growth in leaddemand (roughly 3.5 percent per annum) over this two yearperiod. Growth in refined lead supplies may fall short ofdemand in 2010 and 2011, moving the market toward anarrow surplus."

TIN 2010 2011

Mean $17,376 $18,767

Median $17,548 $18,550

No of F'casts 26 23

Tin was around $17,850.

JUSTIN LENNON, ANALYST, MITSUI BUSSAN COMMODI-TIES

"Tin is performing quite well this year, and it also has asupply constraint."

METAL BULLETIN RESEARCH

"Tin: Stocks are still falling, but with concerns about the

economic outlook the trend may be fragile."

CARL FIRMAN, ANALYST, VIRTUAL METALS

"We do not envisage any physical supply deficits in 2010for any of these metals with the exception of tin."

NICKEL 2010 2011

Mean $20,310 $21,038

Median $20,225 $21,111

No of F'casts 47 46

Nickel was around $18,730

CANACCORD GENUITY

"We continue to like nickel least, noting an excess of latentand new capacity (including accelerating nickel pig ironproduction in China) combined with high inventory levels.

With the recent resolution of the one-year strike at Vale-

Inco's Canadian operations we anticipate the nickel marketto return to a significant surplus in 2011 and 2012, follow-ing a small deficit which boosted prices earlier this year.We anticipate the growth of nickel pig iron to essentiallycap any upside to the nickel price."

NIC BROWN, ANALYST AT NATIXIS

"Demand for stainless steel has experienced a very strongrecovery, to the benefit of nickel prices. However, similarto aluminium, the upside in nickel is capped by potentialsupply of nickel pig iron. Nickel price gains will also be con-strained by new supply -- return to full operation of Vale'sCanadian operations in the short run."

JRG WEALTH MANAGEMENT"Nickel market remains largely balanced but productiondisruptions continue to threaten the market. Delay in pro-duction at Goro mine in New Caledonia continues and uponproduction resumption the mine is expected produce60000 tonnes per year or 5 percent of the total. Improvingstainless steel market has given rise to strength in nickel."

US housing starts fall, permits offer ray of hopeBy Lucia Mutikani

WASHINGTON, July 20 (Reuters) - New U.S. home con-

struction hit its lowest level in eight months in June, furtherevidence the economy lost momentum in the second quar-ter, but a rise in permits offered hope of a pick up in home-building.

The Commerce Department said on Tuesday housing startsdropped 5.0 percent to a seasonally adjusted annual rateof 549,000 units, the lowest since October. It was the sec-ond straight month of declines in groundbreaking activityand was well below market expectations for a 580,000-unit rate.

The data was the latest in a series of indicators to imply theUnited States' recovery from its longest and deepest reces-

sion since the 1930s took a step back in the second quarter,much earlier than economists had initially anticipated.

"Housing is one of the areas of the economy that hashelped deliver V-shaped recoveries in the past and withhousing continuing to languish at very low levels, the V-shaped recovery is basically off the table," said ZachPandl, an economist at Nomura Securities International inNew York.

Analysts do not believe output is contracting, but acknowl-edge the risks of a double-dip recession have risen.

Although housing starts fell last month, applications forbuilding permits unexpectedly rose 2.1 percent to a

586,000-unit annual pace. That implied home construc-tion activity could pick up in July, analysts said.

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Building permits dropped 5.9 percent in May and marketshad expected them to slip to a 570,000 rate in June.

On Wall Street, the major U.S. stock indexes ended higheras Goldman Sachs shares erased losses to gain 2.2 percentand investors opted to focus on the rise in building permits.

The Dow Jones industrial average gained 0.74 percent toend at 10,229.96, while the Standard & Poor's 500 Indexadded 1.14 percent to close at 1,083.48, and the NasdaqComposite Index rose 1.10 percent to finish at 2,222.49.

Initially, U.S. stocks had fallen on the weak housing startsand disappointing earnings from Goldman and other cor-porate giants.

The Dow Jones U.S. home construction index surged 4.13percent.

Safe-haven U.S. government bonds gave up earlier gainsthat had pushed the yield on the two-year note to a recordlow. The U.S. dollar rose against the euro and the yen.

DRAG ON GROWTH

The housing market was one of the key triggers of the eco-nomic downturn and its recovery has relied heavily on thegovernment. Following the end of a tax credit for homebuyers in April, home construction and sales have droppedsharply.

May's starts were revised down to show a 14.9 percentslide, previously reported as a 10.0 percent drop. Com-pared to June last year, starts this June were down 5.8 per-cent -- the biggest decline since November.

"With new home sales likely to be abysmal for the secondquarter, residential investment will be a small drag on realGDP for the second quarter. It is easy to see weak residen-tial investment numbers in the third quarter as well," saidRobert Dye, a senior economist at PNC Financial in Pitts-burgh.

Residential construction contracted in the first threemonths of the year after two straight quarters of growth.

Analysts said the housing starts were close to finding abottom in the aftermath of the tax credit, citing a modestdecline in single-family starts last month.

Groundbreaking for single-family homes slipped 0.7 per-cent to an annual rate of454,000 units, the lowestsince May 2009. Starts for the

volatile multifamily segmenttumbled 21.5 percent to a95,000-unit annual pace, eras-ing May's 4.3 percent rise.

"The report suggests that thehousing market is trying to finda bottom after the expiration ofthe homebuyer tax credit," saidMichael Gapen, an economist at Barclays Capital in NewYork. "We continue to expect housing starts to rebound in

the second half of the year, albeit at a gradual pace."Housing's share of the economy has shrunk in recent years,with residential construction accounting for 2.4 percent ofgross domestic product in the first quarter.

However, it has a had an outsized impact on the economythrough consumer spending and bank lending. When thehousing market is healthy, households feel wealthier andare inclined to spend, while banks profit on mortgageloans.

Last month, home completions surged a record 26.2 per-

cent to an 886,000-unit pace, the highest level since De-cember 2008. The inventory of houses under constructiondropped 5.5 percent to an all-time low 450,000 units inJune while units authorized but not yet started rose 3.6percent to 91,500.

Analysts are concerned high unemployment and a flood offoreclosed properties will continue to hobble new homeconstruction.

"With high unemployment and tight credit likely to keepdemand subdued and more foreclosures set to add to thealready high number of unsold homes, homebuilding activ-ity is going to remain weak for a long time," said Paul

Dales, a U.S. economist at Capital Economics in Toronto.

EXCLUSIVE- German engineering sector hikes2010 outlookBy Marilyn Gerlach and Tom Kaeckenhoff

FRANKFURT, July 20 (Reuters) - Germany's VDMA engi-neering association raised its 2010 output forecast andnow expects production volumes to grow, thanks to a floodof orders from China and emerging markets, its presidentsaid.

"Since August 2009...it has been moving upwards in theengineering machinery production from month to month",Manfred Wittenstein told Reuters in an interview on Tues-day.

"The German machine and plant engineering sector is ap-parently recovering from the crisis faster than expected.The VDMA is therefore raising its production output fore-cast to 3 percent growth in real terms for 2010," he added.

VDMA previously expected output to stagnate this yearcompared with 2009, when it fell by about a quarter to 151

billion euros ($195.9 billion)and capacity utilisationdropped to a record low of 69

percent.The revised guidance comesafter new orders for the Ger-man engineering sector rose bya record 61 percent in May,driven mainly by orders fromabroad.

Companies such as Siemens ,ThyssenKrupp and MAN SEcount among the biggest

names in the sector, the largest industrial employer in theeuro zone's biggest economy and a key pillar that made

Germany the world's top exporter until it was unseated byChina last year.

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The IFO think-tank last month raised its 2010 growth fore-cast for Germany while the government said the economicrecovery should strengthen in the second half of the year.

Siemens, Europe's biggest engineering conglomerate, inApril revised upward its profit outlook for this year and saidlast month cost cuts, strong demand from emerging mar-

kets and a weak euro should boost its core profit margin inthe quarter to end-June.

BOOST FROM ASIA

Wittenstein said demand has been strong especially in ar-eas of energy efficiency and electromobility, with emergingmarkets in Asia building up their infrastructure in thesefields.

In textile, fluid technology, plastic and rubber technologysectors, a jump of more than 50 percent in new orders wererecorded, he said.

Wittenstein said production in the first five months was

down 1.3 percent compared with last year, but the sectorgrew in April and May for the first time in 15 months.

Wittenstein said the 3 percent output growth forecast hadfactored in the likelihood of economic slowdown in theeuro zone but not a double-dip recession.

"After May, we expect a slowdown in growth rate of ordersfor rest of the year," he said.

While recent economic data was showing a slowdown inthe economy was on the cards, "there was still enough up-ward swing that allowed us to still raise our forecast to 3percent."

The revised forecast had also taken into considerationnegative factors, such as the euro zone sovereign debt cri-sis.

"We are worried about the debt crisis, but we are con-vinced the euro zone will overcome this and that the eurowill stabilise," he said.

"I think it is beneficial if the states reduce their deficits, asthis will increase our confidence too. We need a long-termstable relationship. We cannot do our business withcheques bouncing around.

He said total average sector employment was expected tobe at 900,000 this year, down from last year's 939,000.

Speaking to Reuters Insider TV, Wittenstein said astrengthening of China's currency will help raise wagesthere, which in turn will help increase consumption inChina.

"This means that it will be easier for price sensitive prod-ucts to be sold in China," Wittenstein told Insider.

BHP iron ore output at record, cautious on out-lookBy James Regan

SYDNEY, July 21 (Reuters) - BHP Billiton , the world's big-gest mining house, reported a 16 percent jump in quarterlyiron ore output on Wednesday, taking annual production toa record, but cautioned over uncertainties surrounding theshort-term outlook for commodities markets.

Mounting concerns of a slowdown in recovery in westerneconomies and a waning appetite for industrial raw materi-als from China -- the world's top consumer of industrialmetals -- could hit suppliers such as BHP, Rio Tinto ,Xstrata and other sector behemoths beefing up output.

"Uncertainty surrounds the near-term prospects for growth

in the developed world as governments adjust fiscal poli-cies following a period of significant stimulus and subse-quent increase in sovereign debt levels," BHP said in itsJune quarter production report.

"Within China, measures introduced to reduce growth tomore sustainable levels means volatility in commodity end-demand is likely to persist."

China, which accounts for about 25 percent of BHP andRio's revenue, saw its economic growth moderate in thesecond quarter, a slowdown likely to continue for the restof the year as Beijing steers monetary and fiscal policy backto normal after a record credit surge to counter the global

crisis.According to Dong Tao, chief non-Japan Asia economist atCredit Suisse, the slowdown is much more severe and rele-

vant to countries such as Australia that sell commodities toChina.

"What's behind the slowdown? There's a drastic inventorycorrection in the steel sector, and that's being led by mod-eration in infrastructure investment," Tao said.

Until now, analysts have suggested mining companiesneeded to increase productivity to capture the boomingChina trade as well as returning demand in the west, par-ticularly for iron ore.

BHP and Rio are spending billions of dollars on so-called"rapid growth projects" in iron ore mining. The two are alsoaiming to form a joint venture to integrate their separateiron ore businesses in Australia to improve production runsand save $10 billion in repetitive costs.

The partnership still needs approvals from competitionregulators.

RECORD IRON ORE OUTPUT

The rise in BHP's quarterly iron ore output brought annualproduction from the world's third largest producer of thesteel-making raw material to a 124.96 million tonnes, up 9

percent.The world's second-largest iron ore producer, Rio last weekposted a 2 percent drop in June quarter production but stillforecast record output of 234 million tonnes in calendar2010.

Rio ranks ahead of BHP Billiton and behind Vale of Brazilin terms of iron ore production.

"They (BHP) are cautious but not throwing in the towel,"said Peter Chilton, analyst at Constellation Capital Man-agement, which owns BHP shares.

"But I think they're a little bit more cautious than Rio."

Credit Suisse's Dong said BHP and Rio needed to voicecaution because they think there might be a mismatch be-tween analysts' expectations and the reality on the ground.

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"Chinese demand over the next 12 to 18 months is not go-ing to be as bullish as many people believe" Tao said."Certainly we shouldn't be benchmarked against China'sperformance over the past five years," Dong said.

Both BHP and Rio earlier this year threatened to curbgrowth in iron ore production under a 40 percent Austra-

lian "super profit" tax proposed to start in 2012. The taxhas since been watered down to 30 percent, which thecompanies say will not stunt expansion plans.

A decline in iron ore prices has led some analysts to sug-gest producers such as BHP Billiton, Rio Tinto, FortescueMetals and Vale might rethink production schedules this

year.

But iron ore prices were now showing signs of bottoming,according to ANZ Bank.

Spot prices have remained steady at $118-$120 a tonne forthe past week after falling consistently for a month.

"A key positive catalyst will be a recovery in Chinese steelprices, which still continue to slide," said Mark Pervan,head of commodities research for ANZ Bank.

BHP closed up 1.2 percent at A$38.75, outpacing moremodest gains in the wider market.

COPPER OUTPUT DROPS

BHP, the world's second-largest copper producer afterChile's Codelco , said fourth-quarter output dropped 5 per-cent from a year ago, with the company forecasting itsOlympic Dam mine operating at full production in the cur-rent quarter.

Olympic Dam had been running at only a fifth of its200,000-tonnes-a-year capacity since a mine accident inOctober.

It noted a strong performance during the last quarter at its57.5 percent-owned Escondida, Spence and Cerro Colo-rado copper mines in Chile. But Escondida production isexpected to decline by 5-10 percent this year, mainly due tomining of less rich ore.

Rio holds a 30 percent interest in Escondida, the world'sbiggest copper mine. JECO Corp, a consortium formed byMitsubishi Corp , Mitsubishi Materials and Nippon Mining& Metals, owns 10 percent and the World Bank has 2.5 per-cent.

BHP also said it was assessing the impact of the six-monthsuspension of oil drilling in the Gulf of Mexico after Wash-ington in May ordered a temporary halt to 33 explorationrigs as part of a broader response to the BP oil spill.

Drilling at BHP's Atlantis and Shenzi projects in the Gulf ofMexico were halted as a result.

BHP said it ran its Australian Nickel West division at recordlevels in 2009/10, enabling it to draw down most of a sur-plus stockpile of concentrate.

However, during the second half of the 2011 financial year,production from its Cerro Matoso, Colombia nickel division

will drop due to a planned replacement of one of its twofurnaces.

S.Korea buys copper, nickel for Sept arrivalsSEOUL, July 21 (Reuters) - South Korea has bought a totalof 3,000 tonnes of grade A copper cathode and 300 tonnesof nickel cathode all for Sept. 15 arrivals via tenders closedon Wednesday, the state-run Public Procurement Service(PPS) said.

Details of the purchases from Glencore are as follows:

-- Copper cathode of LME registered brands

TONNES PREMIUM (CIF/T) PURITY PORT

2,500 $146 99.99 pct or more Incheon

500 $146 99.99 pct or more Busan

Note: The deal was made at the above premium over Lon-don Metal Exchange official cash settlement prices onTuesday.

-- Nickel cathode for melting

TONNES PREMIUM (CIF/T) PURITY PORT200 $1,000 99.8 pct or more Incheon

Note: The deal was made at the above premium over Lon-don Metal Exchange official cash settlement prices onTuesday.

-- Nickel cathode for plating

TONNES PREMIUM (CIF/T) PURITY PORT

100 $1,225 99.95 pct or more Incheon

Note: The deal was made at the above premium over Lon-don Metal Exchange official cash settlement prices onTuesday.

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Goldman tumbles on commodities but reboundseenBy Barani Krishnan

NEW YORK, July 20 (Reuters) - Goldman Sachs slashedcommodities trading risk in the second quarter amid a lar-

ger-than-expected drop in profit, but analysts said Tuesdaythey expected Wall Street's No.1 commodities trader torebound.

Goldman's Value-at-Risk -- an industry measure of howmuch money a bank has at stake in an asset class -- stoodat $32 million for commodities in the second quarter, down35 percent from the first quarter and 20 percent from a

year ago. (See table below)

Its earnings as a whole dropped a sharper-than-expected82 percent from a year ago, partly because of a one-timeexpense related to a civil fraud settlement with the govern-ment.

Goldman's shares fell more than 2 percent at the open. Bylate trading, however, they showed a gain of 2 percent,lifting Wall Street's key stock indexes as analysts figuredthe bank's fortunes would not stay the same way for long.

"As far as trading more aggressively is concerned, I expectto see the old Goldman back very shortly," said WilliamSmith, chief executive of Smith Asset Management in NewYork.

"They were certainly leading the speculation in commodi-ties and I think they dialed back risk because of other is-sues they were dealing with," Smith said, referring to Gold-man's $550 million fraud settlement with the Securities

and Exchange Commission and another one-time charge of$600 million for a special U.K. bonus tax.

Gary Townsend, president and chief executive of Hill-Townsend Capital in Chevy Chase, Maryland, agreed.

"I would see Goldman being as active in the commoditiesspace going forward as they've been in the past," Town-send said. "I don't know if we can draw too many conclu-sions about the future based on a single quarter's results,particularly with all of the noise that was ongoing, includ-ing the legal issues and so on."

Goldman said its combined net revenues in fixed income,currencies and commodities were $4.4 billion, down 35

percent from the $6.55 billion posted in the second quarterof 2009.

It was the second Wall Street bank to declare a drop inquarterly commodities income as prices of raw materialstumbled sharply in recent months.

JPMorgan Chase & Co , the No. 2 U.S. bank, said last weekits year-on-year net revenue fell to $6.3 billion from $7.3billion during the second quarter, partly because of lowercommodities receipts, although it raised its risk in com-modities trading for the first time in nine months.

JPMorgan's commodities VaR grew to $20 million in thesecond quarter, up from $15 million in the first quarter and

$17 million in the fourth quarter of 2009.

Commodity prices have been mostly lower this year, withthe Reuters-Jefferies CRB index, a global benchmark forthe asset class, falling 5.4 percent in the second quarter,after a 3.5 percent decline in the first.

Much of the losses were accrued in May, when a worseningof the European debt crisis triggered risk aversion that

caused investors to flee to the relative safety of the U.S.dollar, making dollar-denominated raw materials costlierin almost all other currencies.

Rising stockpiles of oil and grains and weak equity marketsalso weighed on prices, wrong-footing many players.

Goldman's quarterly results came a day before those ofMorgan Stanley , another bank closely watched for its com-modities results.

Goldman and Morgan Stanley together account for thebulk of the market-making activity for commodities onWall Street, with both being capable of trading and ship-ping physical crude oil.

Goldman's quarterly commodities VaR (in millions $):

2010 2009

Q2 Q1 Q4 Q3 Q2 Q1

32 49 38 27 40 40

(* Maximum risk in a day based on a 95 percent confidencelevel)

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China's Chalco, Europe's Sapa to form alumin-ium JVHONG KONG, July 21 (Reuters) - Aluminum Corp of ChinaLtd (Chalco) , China's biggest aluminium maker, andEurope's Sapa AB said on Wednesday they have agreed to

form a joint venture to serve China's rolling stock market.The two companies had signed a memorandum of under-standing, and aimed to finalise plans for construction of afacility in southern China by the fourth quarter, Sapa, theworld's largest aluminium extrusion company, said in astatement.

They said the venture would be a 50-50 endeavour, but didnot disclose financial details.

The joint venture's aluminium extrusion and fabricationfacility would include the latest technology for press andfabrication capabilities, according to the two sides.

Products could be launched by as early as the first quarter

of 2011 using existing subsidiaries, Sapa added.

"The Chinese rolling stock industry has seen a very strongdevelopment both in terms of volume and technology,"said the companies. "The joint venture will be able to meetcurrent needs as well as serving the rapidly increasingtechnical demands of the rolling stock industry."

POLL-Robust demand to push copper into defi-cit in 2010By Pratima Desai

LONDON, March 26 (Reuters) - Healthy global demandand the possibility of supply disruptions mean the coppermarket could see a small deficit this year compared withprevious forecasts of a surplus, a Reuters survey showed.

The survey of 13 metal analysts carried out over the lasttwo weeks showed the copper market was expected tohave a deficit of 23,000 tonnes. In the January survey ex-pectations were for a surplus of 115,000 tonnes.

Global demand for copper -- used widely in power and con-struction -- is expected to rise 4.5 percent to 18.5 milliontonnes this year, the survey showed.

China's refined copper imports at 220,530 tonnes in Febru-

ary were up 12 percent from the previous month, ahead offorecasts of 190,000 tonnes, a sign of robust demand fromthe world's largest consumer of industrial metals.

"It has become clear from data so far in 2010 that thestrength of economic growth will set a firm base for furtherstrong gains in China's copper demand," said Gayle Berry,analyst at Barclays Capital.

"Continued expansion of the power grid, strong auto salesand uptake of consumer appliances will be the key drivers."

The copper market last year was boosted by Chinese gov-ernment and consumer demand, partly for stockpiling.

Strong Chinese demand can be seen in the country's re-fined copper imports -- a record 3.19 million tonnes last

year, up 118.7 percent from 2008.

Evidence of rising demand this year can be seen in stocksof copper in London Metal Exchange warehouses whichhave fallen 35,400 tonnes since March 1 to 516,925 tonnes.

Benchmark copper on the London Metal exchange surgedabout 140 percent last year. On Friday it traded around$7,500 a tonne, having hit a 2010 high of $7,796 a tonne

on Jan. 7.

LONGER LEAD TIMES

Also behind the forecasts for a small deficit is the idea thatcopper production may be prone to disruptions.

The earthquakes in Chile earlier this year illustrate thepoint. The earthquake did no serious damage to mininginfrastructure, but it did hit power supplies.

"Refined production remains vulnerable to strikes, equip-ment failures, low ore grades, and more recently the scar-city of copper scrap," said Justin Lennon, analyst at MitsuiBussan Commodities.

"(However) with the price of copper significantly above thecost of production, miners are quickly increasing availablecapacities."

Forecasts for the market balance range from DeutscheBank and Mitsui's surplus of 300,000 tonnes to UBS's defi-cit of 1 million tonnes.

"We think copper is going to get excruciatingly tight by themiddle of the year because of the end of destocking andrestocking in the world outside China," said Julien Garran,analyst at UBS.

"Restocking is driven by the cost of capital and whethercustomers think the products they need are gettingscarcer ... We are already seeing sharply extended leadtimes for delivery of copper products."

China June refined copper imports fall 24.2 pctBy Polly Yam

HONG KONG, July 21 (Reuters) - Chinese refined copperimports fell 24.2 percent in June from a month earlier, cus-toms data showed on Wednesday, as rising domestic out-put and draws on stockpiles meant demand for copper onlyslipped 3.2 percent.

Imports fell for a third straight month and are down 44percent from a record high a year earlier. Still, Reuters cal-culations based on official data show implied demand fell

just 2.8 percent from June last year.

"You need to be careful with year-on-year comparisons.The absolute number looks reasonably resilient," saidDaniel Major, a commodities analyst at RBS in London.

"China still has plenty of stock to draw down...if anything itmight be positive for the market if we get a period of sub-200,000 tonne imports as it will erode unreported stockssetting us up for pricing tension in 2011."

Implied demand for aluminium, where Chinese production

routinely dwarfs imports, rose 6.5 percent on the month asdeliveries into exchange warehouses slowed, despite Chinaflipping to net exports of the metal during the month.

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For an interactive graqphic on China trade data, click:

http://graphics.thomsonreuters.com/F/07/CN_TRD0710.html

Implied demand calculations are based on trade figuresfrom China's Customs and output figures from the National

Bureau of Statistics, with an adjustment for approximatechanges in stock levels, where available.

The percentage changes are calculated on a daily averagebasis in order to remove the distortion caused by differentlength months.

June's copper inflows were about a third lower than the300,000 tonnes that analysts and traders had anticipated.

"The data reflects that China's importing has returned toreal conditions -- they are for covering a domestic deficit,"said Grace Qu, a Shanghai-based copper consultant forLondon-headquartered CRU, referring to last year's high

volumes, which were supported by investment and stock-

ing needs.Qu said poor arbitrage in April and changes in China'smacro-economic policies in April-May also led to lowerarrivals of refined copper in June.

"Imports in the second half may be lower than the firsthalf. The full year imports could be 2.8 million to 2.9 mil-lion tonnes," she said, adding the lower investment planfor power grids and a weaker property market would re-strict copper consumption this year.

Traders attributed June's fall to low bookings of the metalin the spot market between late March and early Aprilwhen arbitrage buying from the London Metal Exchange

to Shanghai closed. They also cited strong buyer demandfor bonded copper in Shanghai in June when the arbitrageimproved.

Bonded stocks in Shanghai were estimated around100,000-200,000 tonnes compared to around 300,000tonnes in May.

Last week, premiums for spot refined copper were offeredat $110-$120 per tonne over LME cash prices for Septem-ber arrivals from Chile to China and over $150 for thebonded copper, compared to $100-$120 and $120-$150,respectively, in the previous week.

Demand for zinc grew some 13.5 percent from May with

large outflows from Shanghai stocks offsetting a decline innet imports.

First Quantum copper output falls in secondquarterTORONTO, July 20 (Reuters) - First Quantum Mineralssaid on Tuesday its second-quarter copper production fellas growing legal woes in the Democratic Republic of Congohave forced it to limit investment at its Frontier mine in thecentral African country.

Already battling to regain rights that were stripped by the

Congo government last year from its Kolwezi tailings pro-ject, the company learned in May that the Congolese Su-preme Court had annulled its rights at the Frontier andLonshi copper mines, following a challenge by the coun-try's state-owned miner.

First Quantum is still mining at Frontier as no direct actionhas yet been taken by authorities to shut down the mine.However, due to the uncertainty, the company cut back oncapital investments at the mine during the second quarter.

The company said its copper production in the quarter fell7.7 percent to 85,400 tonnes, while gold output rose 27

percent to 51,400 ounces on increased production at itsmines in Zambia and Mauritania.

The company lowered its 2010 copper production forecastby 6.5 percent to 360,000 tonnes, sending its shares down1.1 percent to C$60.28 on the Toronto Stock Exchange.

Zambia's Kansanshi H1 copper output declinesLUSAKA, July 20 (Reuters) - Copper production at FirstQuantum Minerals' Kansanshi mine in Zambia fell 9.5 per-cent to 109,700 tonnes in the first half of 2010 comparedwith the same period last year, the company said on Tues-

day.First Quantum said gold output at the Kansanshi mine roseto 51,200 ounces in the first six months of the year from42,110 ounces last year, while second quarter output for2010 also increased to 26,900 ounces from the 20,117ounces produced in the same period in 2009.

Kansanshi, Zambia's largest mine by output, produced56,100 tonnes of copper in the second quarter of this year

versus 60,392 tonnes in the corresponding period of 2009,it said.

No reasons were given for the fluctuations in output.

The company said it produced 5,000 tonnes of copper atits Bwana Mkubwa processing plant in Zambia, Africa'slargest copper producer, in the first six months of this yearafter reopening the plant which was shut due to lack of rawmaterials.

POLL-Strong stainless demand means nickeldeficit in 2010By Sue Thomas

LONDON, July 20 (Reuters) - A surge in stainless steel de-mand, supply constraints and falling stocks will mean a

nickel market deficit this year, but the shortfall is likely tonarrow in 2011 as production rises, a Reuters surveyshowed.

The survey of 17 metal analysts carried out over the lastfour weeks showed the nickel market was expected to see adeficit of 32,000 tonnes in 2010. In the January survey ex-pectations were for a surplus of 15,000 tonnes.

"Demand for stainless steel has experienced a very strongrecovery, to the benefit of nickel prices," said Nic Brown, ananalyst at Natixis. Stainless steel accounts for two thirds ofnickel demand.

Benchmark three months nickel futures on the London

Metal Exchange are now around $19,000 a tonne from lev-els below $10,000 in February 2009.

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Last year prices climbed 58 percent, helped by strong de-mand and supply disruptions, including an almost year-long strike at Brazilian company Vale's Sudbury mine inCanada.

The strike, one of the longest and most acrimonious labourdisputes in Canada's mining history, ended this month.

Sudbury and Vale's Voisey's Bay nickel mine in easternCanada produce about 10 percent of the world's nickel.

"However...the upside in nickel is capped by potential sup-ply of nickel pig iron," Brown said, referring to a new pro-duction process applied in China, for which there is abun-dant but unknown capacity.

"Nickel price gains will also be constrained by new supply -- return to full operation of Vale's Canadian operations inthe short run."

Production at Voisey's Bay, where workers went on strikelast August, is partially back on line.

But delays in production at Vale's new Goro mine in NewCaledonia continue. In April, the company said it hadhalted commissioning work at the already delayed opera-tion.

The new $4.3 billion project, which is expected to eventu-ally produce 60,000 tonnes of nickel a year, has been re-peatedly delayed over the past 18 months.

"The failure of the Goro HPAL mine so far means the mar-ket will remain tight in 2011, when we forecast an essen-tially balanced market," Barclays Capital analyst GayleBerry said.

STOCKPILES

Unreported stockpiles of nickel in China are also helping tokeep the market tight. Nickel pig-iron production may helpoffset supply shortages, although some analysts say pro-duction of the lower grade nickel is slowing.

"With restocking efforts by stainless steel mills largelycomplete, growth in nickel consumption is expected to beslashed in 2011," Catherine Virga, analyst at CPM Group,said.

"Meanwhile growth in refined supplies may continue topick up steam, sharply narrowing the projected deficit in2011," she said.

Nickel stocks in LME registered warehouses have been fal-ling, ending June at 123,678 tonnes, or around 32 days ofdemand, down from 138,396 tonnes the previous month.

Inventories were at 118,206 tonnes on Monday, their lowestsince September last year.

"Mine restarts were generally priced in, but what is not andwill ultimately be the catalyst for a change in LME stocktrends is the slowdown in the global stainless sector during(the third quarter)," Berry said.

Vale Voisey's strike talks break off over bonusTORONTO, July 20 (Reuters) - Vale and the union repre-senting striking workers at its Voisey's Bay nickel mine ineastern Canada have broken off talks aimed at ending the

year-long stoppage, the United Steelworkers said on Tues-day.

The strike began Aug. 1, and hopes for a solution picked upearlier this month after the resolution of a parallel strike atVale's larger mining and smelting complex at Sudbury,Ontario.

Boyd Bussey, a union staff representative, said talks brokedown after the company offered a bonus system inferior to

the deal given to workers in Sudbury.

"The proposed bonus system is unacceptable. It's basedentirely on incentives rather than the present one basedsolely on the average realized price of nickel or the profit-ability of the company," he said.

"The company has also refused to discuss other out-standing issues on the table until the union agrees to thenew bonus system," he added.

Voisey's Bay, located in the province of Newfoundland andLabrador, produced 77,500 tonnes of nickel and 55,400tonnes of copper in 2008, the last year of uninterruptedmining.

Vale resumed partial production at Voisey's earlier thisyear using non-union workers and outside contractors atan annualized rate of about 19,000 tonnes of nickel and15,000 tonnes of copper.

POSCO to hike stainless steel production inVietnamSEOUL, July 21 (Reuters) - South Korea's POSCO said onWednesday its Vietnamese unit would expand cold-rolledstainless steel production capacity through 2014 to en-hance its business in Southeast Asian markets.

POSCO, the world's No. 3 steelmaker, would beef up ca-pacity to 235,000 tonnes in 2013 and to 285,000 tonnes in2014 from the current 85,000 tonnes, the firm said in astatement.

POSCO in March said it would raise its Vietnamesestainless steel plant capacity by 200,000 tonnes per yearin the near future as part of its efforts to secure a stablecustomer base for the business in the region.

The firm also has been negotiating to take over ThainoxStainless Pcl , Southeast Asia's largest stainess steel pro-ducer, but the talks have been stalled due to political insta-bility in Thailand.

Brazil iron miners see Q4 spot price bounceRIO DE JANEIRO, July 20 (Reuters) - Spot prices for ironore will rise in the fourth quarter after a decline in the pastmonths, officials from Brazilian mining companies Valeand MMX said on Tuesday.

"Spot prices fell in the third quarter, which we considerseasonal. Our expectation is that they will increase again inthe fourth quarter," said Claudio Alves, director for ironsales in the Americas for Vale -- the world's largest ironore producer.

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Spot iron prices have fallen to around $117 per tonne afterreaching highs above $180 per tonne due to a range of fac-tors including slowing Chinese demand and a general sof-tening of commodities markets of late.

"Demand is currently strong in the market. We have re-quests for additional contracts every day," said Roger

Downey, president of iron mining firm MMX , which alsopredicted prices would rebound.

Both were speaking at the CRU Latin American Iron & SteelTrends conference in Rio de Janeiro.

Iron markets are operating under a new quarterly pricingsystem that replaced the decades-old annual benchmarksystem.

Prices under the quarterly system are based on spot pricesfrom the previous quarter.

Miners could move to monthly pricing due to increasedvolatility in iron prices, an industry analyst said on Tues-

day.

Iron miners may move to monthly pricing, eyeswapsBy Brian Ellsworth

RIO DE JANEIRO, July 20 (Reuters) - Volatility in iron pricescould push the mining industry toward a monthly pricingmechanism, only months after it abruptly abandoned theannual benchmark system, an industry analyst said onTuesday.

With spot prices below quarterly prices, the new bench-

mark system is already showing strains similar to thosethat plagued the decades-old annual pricing system.

"This quarterly pricing system is not yet the end of theroad," said Philip Tomlinson, Director and Managing Con-sultant for CRU Strategies, speaking during the LatinAmerican Iron & Steel Trends conference in Rio de Janeiro.

"I think we will be moving to monthly pricing for iron ore ...and eventually to exchange-based trading, but it is stilltoo early to say when."

The mismatch between spot and quarterly contracts couldallow speculators to build up stocks when spot prices arelow and then buy on quarterly contracts when prices goback up.

Chinese buyers did this in the wake of the 2008 financialcrisis with the benchmark system and the spot market,leaving miners selling cheap ore at benchmark prices toclients that often stockpiled it and resold it for a markup onthe spot market.

That spurred the big three iron miners -- Brazil's Vale andAustralian miners BHP Billiton and Rio Tinto -- to scrapthe benchmark system.

Claudio Alves, iron sales director for the Americas for Vale -- the world's largest iron ore miner -- said the company hadnot received requests from clients to move to monthly pric-ing.

But those pressures may in fact come from company share-holders, who felt distortions created by the benchmark sys-tem caused the miners to lose money.

Iron for spot market delivery has fallen to around $120 pertonne, compared to the formula-based third-quarter priceof around $140 per tonne, after reaching a two-year peak

above $180 per tonne.

With spot prices expected to rise in the fourth quarter, min-ers will again be selling at below the prices settled underthe new quarterly system.

SWAPS GROW

Monthly pricing could spur an already growing market forswap contracts that help buyers and sellers lock in oreprices while letting speculators bet on the price of iron.

"If swaps become liquid, steelmakers could hedge them-selves on the cost side, while iron ore makers could hedgethemselves on the revenue side," said Marcos Assumpcao,

an analyst with Itau Securities."With a move to monthly contracts, swap contracts wouldbe even more relevant."

Liquidity is still limited. Industry estimates show tradingvolume of the iron swaps market at around 30-40 milliontonnes, equivalent to around 3.5-5 percent of the annualseaborne iron ore trade.

"Since 2008 the use of iron ore swaps has been growingsteadily, but there's not enough liquidity for hedging morethan a couple of cargoes without distorting the market,"said Gareth Hudson, a broker with London CommodityHoldings Limited, which handles trading of iron ore con-

tracts.Brokers see the volumes rising to 60-70 million by the endof the year and say they could well exceed 100 million ton-nes by end-2011.

One of the barriers to expanding swaps trading is the lackof qualified traders knowledgeable of the iron market,where speculative capital is only starting to break in after

years of domination by the yearly fixed-price benchmarksystem.

"There's a lack of talent on the iron ore desk, what ends uphappening is companies take people from their steeldesks" who are not always experts on iron, said Hudson.

Japanese trading company Mitsui last month signed Ja-pan's first iron swap contract, and analysts have widelypredicted that the mechanism will account for growing

volume of iron sales.

"Iron ore swaps are a valuable tool for producers and con-sumers to manage commodity price risk, therefore there isno reason why they shouldn't take off in the iron ore mar-ket," said Dale Emmerson, director in Deloitte's Commod-ity Risk Management Practice, in response to that deal.

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China sees gold lining in Australia iron ore pro-jectsBy James Regan

SYDNEY, July 21 (Reuters) - Chinese steel producers areincreasingly turning to Australia's magnetite iron ore sec-

tor, pouring in funds to explore and develop mines onceconsidered uneconomic as they nurture new supplysources.

If the trend snowballs it could cut China's reliance on gi-ants Rio Tinto RIO.L> and BHP Billiton , a critical move asthe duo pursue a controversial iron ore merger that steelmakers fear will create a near-monopoly in Australian ma-terial if left unchecked.

China has been mining and processing magnetite iron orefor decades, building up a wealth of knowledge and exper-tise in the area. This helps explain why overall investmentin the Australian magnetite sector of around $10 billion so

far is set to increase.A free fall in hematite iron ore prices, which lost 40 percentover the past three months as overall steel production re-coils in China, has done little to sate appetite, with inves-tors taking a longer-term bullish view.

"If you're a Chinese steelmaker and you want a direct say inhow much iron ore you get, the magnetites are the bestoption because they offer ground-floor exposure at rela-tively low cost and include offtake agreements," said EagleMining Research analyst Keith Goode. "It's not somethingthe big boys can offer."

Firms such as Baosteel , Anshan Iron & Steel Group

(Ansteel) , Sinosteel, Citic Pacific Mining , Shagang, ChinaMetallurgical Corp and others are backing projects thatpromise to deliver 25 million tonnes over the next two

years from only 3.3 million now.

CHINESE DEPOSITS FACE DEPLETION

Chinese steel mills have long fed on magnetite ores fromonce-abundant domestic deposits now facing depletion,while the focus in Australia has always been on plentifulsupplies of hematite ores.

Magnetite, which accounts for just 1 percent of Australia'stotal iron ore production, has lower iron content -- around36 percent versus 61 percent for hematite -- and must be

upgraded, typically into pellet form, at an added cost ofaround $15 per tonne, to make it suitable for steel making.

By contrast, hematite is known as "direct shipping ore" or"DSO" because it is mined and beneficiated via a simplecrushing and screening process before export.

But in the last few years iron ore of any type has turned togold for anyone able to mine it and transport it to a port fora relatively short journey to Asian shores.

This quarter alone, the fifth-biggest iron ore miner in Aus-tralia, Grange Resources , was able to raise magnetite ironore pellet prices by 107 percent and forecasts are for pelletprices to continue to rise.

For now, all but a fraction of Australia's iron ore is stillmined in the established Pilbara hematite iron belt, whereRio, BHP, Fortescue and Atlas Iron are forecast to producea combined 440 million tonnes this year.

PURPOSE-BUILT PORTS

Traditionally, there has been minimal seaborne trade andsteel mills were often built beside magnetite mines, butChinese firms are displaying a willingness to fund new Aus-tralian ports purpose-built to service new magnetite mines.

Recent start-up Gindalbie Metals has a contract to delivernearly 900 million tonnes of iron ore from its Karara mag-netite deposits to China's No. 2 steelmaker, Ansteel, overthree decades.

Its first shipment of 10 million tonnes is due in 2011 via theIndian Ocean port in Geraldton.

Last month, the China Development Bank provided $1.2billion in loans for studies of a project for a second largerport to maximise production.

"The development of new ports is opening up vast opportu-nities that did not exist before," said Garret Dixon, manag-ing director of Gindalbie.

"For Ansteel, Karara becomes a strategic long-term costeffective source of iron ore for their expanding steel makingfacilities."

There are more than 20 identified magnetite deposits andprospects in Australia, making up an estimated 4.7 billiontonnes of the resource in Western Australia, 1.6 billion ton-nes in South Australia and 700 million tonnes each in Tas-mania and Queensland. Each state has attracted Chinesemagnetite investment.

"The Chinese steel companies understand and appreciatethe potential for Australia's magnetite industry to growinto a major force," Gindalbie's Dixon said.

"We represent a real ground-level opportunity for long-term supply."

China lead output may see rare fall this yearBy Polly Yam

HONG KONG, July 21 (Reuters) - China's annual refinedlead production may fall this year for the first time in atleast a decade as concentrates are expensive and environ-mental checks stay tight, analysts and smelter officialssaid on Wednesday.

A fall in China's lead output, the world's biggest, couldtrim a surplus of 60,000 tonne expected this year by 17analysts in a Reuters poll.

"(Annual) output may fall 5 percent this year," said TangChenghe, chairman of lead producer Anyang Yubei Gold &Lead in Henan province, China's top lead producing area.

He said refined lead output was unlikely to rise sharply inthe second half of 2010 over the first, thanks to insufficientsupplies of concentrate.

Treatment charges for concentrate imports were low, en-couraging smelters to cut production, said Tang, addingthat despite rising domestic concentrate production, de-

mand exceeded output.

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"2010 output may fall by about 100,000 tonnes from2009," a sales manager at a large lead smelter predicted,adding that production cuts to existing capacity were likelyto offset output from new capacity this year.

The top lead producing city of Jiyuan in Henan is home to32 small lead refiners with annual capacity of 10,000 to

20,000 tonnes each, most of which have halted productionfor much of this year, and it is unclear when they will re-sume, smelter officials said.

Production of refined lead, which includes primary andrecycled lead, dropped an annual 7.1 percent in the firsthalf of the year versus 20 percent growth a year ago.

Annual output rose 16.4 percent last year to 3.87 milliontonnes.

More than 500,000 tonnes of new lead smelting capacityis expected to start production this year compared to490,000 tonnes last year, Hu Yongda, analyst at state-backed research group Antaike estimated.

But some of that new capacity may delay startup if treat-ment charges for concentrate imports stay low and leadprices remain weak, Hu said.

LOW TCs

Tang at Anyang said the firm had accepted a treatmentcharge of about $60 per tonne for concentrate imports,below its production cost.

"We don't want to massively cut production (now) and Ithink (metal) prices may rise in the second half," he said ofimporting concentrate at low charges and of expectedhigher fourth quarter prices as lead consumption rises in

winter.Battery making is the biggest consumer of lead in Chinaand winter is the peak sales season for car batteries.

Treatment charges are paid by overseas concentrate sellersto Chinese lead smelters to turn the material into metaland deducted from the sale price, based on London MetalExchange lead .

A fall in treatment charges typically raises the price of con-centrate imports.

The charges to China now were indicated at $30-$40 pertonne versus over $100 in May and $110-$130 in March, dueto reduced supplies, traders and smelter officials said.

The charges may fall further before the fourth quarter asChinese lead smelters raise production for the peak con-sumption season, traders said.

Hu at Antaike said weak domestic metal prices , fallingnear 6 percent so far this year, had spurred smelters toclose outdated capacity this year.

Beijing aims to phase out 243,000 tonnes of outdated leadsmelting capacity by the end of 2010 and has tightenedchecks on lead smelters after several lead poisoning inci-dents last year.

POLL-Lead market to tip into small deficit in2011By Karen Norton

LONDON, July 20 (Reuters) - The global lead market willmove into a small deficit in 2011 as demand for batteries

picks up in line with stronger car production, a Reuters sur-vey showed.

The survey of 12 analysts taken over the past four weeksshowed the average forecast for the lead market balancenext year was for a deficit of 6,000 tonnes. This wassmaller than the 52,000 tonnes shortfall predicted in Janu-ary.

The market will record a 60,000 tonnes surplus in 2010,according to the average of forecasts provided by 17 ana-lysts. This was little changed from the 62,500 tonnes aver-age forecast made in January.

"The demand side will be key. We're not forecasting a dou-

ble dip recession and our view is that we will see strengthcoming through in the auto sector," said Credit Agricoleanalyst Robin Bhar.

Batteries, used mainly in cars, account for around 80 per-cent of lead demand.

Changes to the predicted balances from those made inJanuary are modest, helped by the fact that lead demand ismore resilient than other metals in cyclical downturns.

Lead used in replacement batteries accounts for 40 per-cent of total offtake. Demand for these is subject to sea-sonal factors -- the vagaries of the weather, such as harshwinters or extreme hot summers when old batteries tend tofail.

On top of widely predicted steady demand growth over theforecast period, many analysts also expect tight mine sup-ply to continue to rein back refined production, thus pre-

venting a large accumulation in inventories through to nextyear.

"We expect the market to be balanced in 2011, as demandgrowth slows but still remains firm in China, and continuesto improve in the rest of the world," said Barclays Capital ina recent report.

"Supply is set to grow at a slightly faster pace, as Chinacontinues to increase smelter capacity, but concentratemarket tightness will be the limiting factor.

Barclays Capital expects global refined output to grow by4.8 percent this year and by 5.6 percent next year.

PRICES UP ON DEFICIT

With the market forecast to move into deficit in 2011, leadprices are expected to average at a higher $2,178 a tonnenext year from $1,996 this year, according to a separatesurvey on metal prices.

The London Metal Exchange (LME) cash lead price wasaround $1,750 a tonne on Tuesday.

The largest surplus in lead predicted for 2010 is 260,000tonnes made by Morgan Stanley, while the smallest is Bar-clays Capital's 6,000 tonnes.

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For 2011, forecasts across the 12 analysts surveyed span arange of a 170,000 tonnes surplus to a 110,000 tonnesdeficit. Bank of America Merrill Lynch also expected leadmine supply to primary smelters to remain constrained.

Smelter cutbacks are possible in China if processing feesreceived from miners to treat their mined concentrate re-

main low.

Meanwhile, availability of scrap for secondary smelters wasalso relatively tight, again helping to prevent massive over-supply of the metal.

"Given steady lead demand and subdued increases in sup-ply, we believe that a lead glut is unlikely going forward,"said analyst Michael Widmer.

"Nevertheless, we continue to forecast a small surplus in2010 and a roughly balanced market next year."

Exxaro says no talks yet with Vedanta over mineJOHANNESBURG/WINDHOEK, July 20 (Reuters) - SouthAfricaN diversified miner Exxaro said on Tuesday it hadnot yet opened talks with London-listed Vedanta Re-sources Plc over the sale of Exxaro's zinc mine in Namibia.

Exxaro spokesman Riaan Smit said the company, whichplans to sell all its zinc assets, would engage with potentialbuyers at a later stage.

The New Era newspaper in Namibia had earlier reportedthat negotiations between Exxaro and Vedanta over theRosh Pinah zinc mine had reached an advanced stage.

"We are not in detailed negotiations with Vedanta at this

moment. We are still busy with a few things on our side tomake sure we get fair value for our assets and to be surewe are ready for the process," Smit told Reuters.

Earlier this year, Vedanta acquired Anglo American's zincinterests for $1.34 billion, including its Namibian SkorpionZinc operation, the Black Mountain mine, the Gamsbergproject in South Africa and Lisheen mine in Ireland.

Vedanta paid $698 million for Skorpion Zinc, which is adja-cent to the Rosh Pinah mine.

Exxaro owns 50.4 percent of Rosh Pinah, which produced94,000 tonnes of zinc concentrate and 20,000 tonnes oflead in 2009, while the balance of the shares are held by

Namibian empowerment groups.

Doe Run Peru creditors reject settlement pro-posalBy Teresa Cespedes

LIMA, July 20 (Reuters) - Doe Run Peru's suppliers andcreditors rejected the company's proposal to settle millionsin debt, an official for one of the creditors said Tuesday,complicating efforts to restart production at the sprawlingsmelter.

Doe Run Peru, a unit of privately held U.S.-based RencoGroup, operates the La Oroya smelter, which has been shutfor the past year after the company fell into financial trou-ble.

The company owes $110 million to mining suppliers, mostof them mining companies operating in Peru's central An-des.

The company says it can finish a controversial environ-mental cleanup program required by the government onlyif it first restarts the plant. The cleanup would need about

$150 million more in funding.

The government has given the company a deadline of July27 to restart operations. The Doe Run crisis has weighed onPresident Alan Garcia's administration, which fears theloss of 3,500 direct workers and 16,000 in the Andean re-gion of Junin, where the mining complex is located.

"We have not accepted the proposal of Doe Run becausethe company is asking us, among other things, to sign overpower of attorney to represent us in our own claim or law-suit," said a source at a mining company who did not wantto be identified.

"We want La Oroya to succeed, but we have said that wedon't accept these conditions," the source said.

Important mining companies are among Doe Run's credi-tors, including precious metals producer Buenaventura ,zinc and silver producer Volcan and base metals producerEl Brocal , among others. Mining is an economic driver inPeru, one of the world's largest mineral producers. Thecompany stopped operations in June of last year afterbanks cut their lines of credit amid a financial crisis thatbrought the company to near bankruptcy.

At the beginning of March, the company announced a fi-nancial agreement with Swiss trader Glencore to reinitiateoperations at the smelter, but so far the plant has re-

mained shuttered."What is clear is that the company has to meet the de-mands of its unions, creditors and the government," thesource said.

Japan Q3 ferrochrome price down 6 cents fromQ2TOKYO, July 21 (Reuters) - The term price for ferrochrometo Japan for the third quarter fell 6 cents per pound, or 4percent, from the previous quarter to $1.38, a Japanesecompany official said on Wednesday.

"We have reached a decision with major South Africanfirms," said an official at Nippon Steel & Sumikin StainlessSteel Corp, adding that the price in part reflected recentmarket price trends.

NSSC typically holds term talks with Xstrata Plc and oth-ers.

Earlier this month, South Africa's Merafe Resources Ltdsaid the European benchmark ferrochrome price was set-tled at $1.30 per pound for the third quarter of 2010, down4 percent from $1.36 in the second quarter.

"South African suppliers initially wanted a rise, citing the

rand's strength and higher electricity costs due to seasonaldemand. But we settled after discussing recent marketprice moves, and how we wanted stable supply andprices," the NSSC official said.

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"The drop is also similar to that agreed in Europe," he said.

Analysts said they expected a decline after a fall instainless steel scrap prices and a slowdown in stainlesssteel orders. Prices for ferrochrome jumped by 35 percentin the second quarter as demand rebounded.

The third-quarter term price was 42 percent above thesame period a year ago.

The term price for ferrochrome to Japan for the secondquarter rose by 35 cents per pound from the previous quar-ter to $1.44, or 32 percent.

The 32 percent quarterly increase was the largest since theterm price for ferrochrome was raised by 55 percent to$2.00 in the second quarter of 2008.

The NSSC official said users were taking a wait-and-seestance on how supply/demand balances will be in comingmonths, which was reflected in market prices, leading tothe drop in term price for the third quarter.

NSSC, 80 percent owned by Nippon Steel Corp and 20percent by Sumitomo Metal Industries Ltd , is Japan's larg-est comprehensive stainless steel maker.

Greenland firm sees rare earth metals potentialCOPENHAGEN, July 21 (Reuters) - Greenland mining com-pany NunaMinerals said on Wednesday that magnetic andradiometric surveys showed potential for extracting rareearth elements (REEs) in two of the company's licence ar-eas.

REEs, also called rare earth metals, have a variety of tech-nological and industrial applications, from motor magnetsfor hard disk drives, CD ROMS and DVDs to batteries forhybrid cars and as a catalyst in petroleum refining.

China is the world's leading producer and consumer ofREEs, though rare earth resources are found on all conti-nents.

Nuuk, Greenland-based NunaMinerals said in a statementthat surveys confirmed prospectivity for REEs at its Ti-kiusaaq licence and Qeqertaasaq licence.

"These targets are currently being explored on the

ground," NunaMinerals said. "Analytical results are ex-pected during August 2010."

Copenhagen-listed NunaMinerals shares traded up 1.5 per-cent at 208 Danish crowns by 0805 GMT, outperformingthe market.

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METALS- Copper at 3-wk high on Chinese bar-gain huntingBy Michael Taylor

LONDON, July 21 (Reuters) - Copper hit a near three-weekhigh on Wednesday as strong physical and Chinese buying

coupled with falling inventories supported prices, but gainswere capped by the uncertain outlook for economic growth.

By 0951 GMT, copper for three-month delivery on the Lon-don Metal Exchange traded at $6,761 a tonne from $6,637at the close on Tuesday and compared with a session highat $6,795.

On Tuesday, new U.S. home construction hit its lowestlevel in eight months in June, further evidence the economylost momentum in the second quarter.

"Everything pointed towards some weakness but we gotthe opposite," said Daniel Brebner, analyst at DeutscheBank. "The key thing is the Chinese buying interest remains

decent -- so there is arbitrage (interest)."

Shanghai's benchmark third-month copper gained 0.6percent to close at 53,350 yuan a tonne. The contractpeaked at 53,600 yuan, also its highest since July 15.

Used in power and construction, copper prices rose 140percent last year but are down about 8 percent in 2010.

"We're seeing more activity from commercials -- fabrica-tors, manufacturers, consumers," Brebner said. "Thephysical market is taking advantage and buying, andphysical markets remain tight."

On Wednesday, the euro hovered near a 10-week high

against the dollar, supported by strong U.S. corporateearnings that also boosted global shares. A weak U.S. cur-rency makes metals priced in dollars less expensive forholders of other currencies.

Keeping price gains in check was data showing China'simports of refined copper falling for a third straight monthin June. The figures followed data last week showing pro-duction of refined copper in China, the world's biggest con-sumer, rose 6 percent to a record 422,000 tonnes in Juneas smelters lifted output to meet targets.

Looking ahead, U.S. Federal Reserve Chairman Ben Ber-nanke is due to speak about the economy and monetarypolicy before the Senate Banking Committee at 1800 GMT.

Investors also awaited corporate results from financialfirms Morgan Stanley and Wells Fargo later.

"Key issues are, for the most part, decent earnings num-bers coming through and macro data that looks quitepoor," said Brebner. "You've got this tussle between posi-tive and negative, and as a consequence I see these thingstrade range bound."

ZINC FORECASTS CUT -POLL

In the mid-year Reuters metals price poll, analysts cut theirforecasts for zinc prices for 2010 from a similar survey inJanuary.

The survey of 55 metal analysts taken over the last fourweeks showed copper was expected to average $6,878 atonne this year from $7,077 a tonne in the January poll. Foraluminium the number was an unchanged $2,094 a tonne.

Aluminium traded at $1,993.50 versus $1,971. LME stocksfor the metal, used in transport and packaging, climbed2,925 tonnes to 4.42 million tonnes but are down from re-cord levels above 4.64 million tonnes touched in late Janu-ary.

Copper stocks fell 1,975 tonnes to 417,625 tonnes, down

from near seven-year highs at 555,075 tonnes hit in mid-February.

"The wider ranges continue to hold on the LME, with basemetals still trading off equities and broader market senti-ment," said VTB Capital in a note.

"However, the correlation with the stock markets haseased somewhat for metals like copper and aluminium,where fundamentals held firm, as also evident from persis-tent stock draws across the board," it added.

Zinc traded at $1,887 a tonne from $1,875 and tin was at$18,325 from $18,240.

Steel making ingredient nickel traded at $19,270 from$19,125 while battery material lead was at $1,853.75 from$1,837.

PRECIOUS-Gold holds near 1,190/oz as equi-ties riseBy Jan Harvey

LONDON, July 21 (Reuters) - Gold held near $1,190 anounce in Europe on Wednesday as a brief rally in the metalran out of steam after well-received U.S. corporate earn-ings reports boosted appetite for assets seen as higher risk,

like equities.A 6.1-tonne fall in holdings of the world's largest gold-backed exchange-traded fund, the SPDR Gold Trust , onTuesday, their biggest one-day decline since December,indicates waning investment demand for the metal, ana-lysts said.

Spot gold was bid at $1,190.55 an ounce at 0931 GMT,against $1,