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By TATYANA SHUMSKY

Copper rose to a two-and-half-year high after U.K. regulators cleared the way for the launch of an exchange-traded fund created to invest in the metal.

The most-active contract, for March delivery, settled 1%, or 4.15 cents, higher at $4.0495 a pound on the Comex division of the New York Mercantile Exchange, just short of the record set in July 2008. Front-month but lightly traded December contract ended up 1%, or 4 cents, at $4.0440 per pound.

ETF Securities on Tuesday said a collection of exchange-traded commodity funds focused on copper, nickel and tin has been approved for trading on the London Stock Exchange. They are expected to commence trading on Friday.

The news is bullish for copper prices because investor purchases of shares in ETFs backed by physical copper would tie up the red metal, keeping it from consumers. Copper has a wide array of uses in construction and electronics. Inventories tracked by the London Metal Exchange have been falling all year. Copper inventories at LME-listed warehouses, considered an indicator of metal demand, fell 1,000 metric tons to total 351,375 metric tons on Tuesday. The latest data showing Comex copper stocks, released Monday, showed a decline of 839 tons to total 69,516 tons.

Robin Bhar, a senior metals analyst at Credit Agricole, said he was surprised that trading of the instrument would start so soon. "We all thought it would be the end of the year or possibly, more likely, the first day of the new year," Mr. Bhar said.

ETF Securities released investor prospectuses for its ETFs on Tuesday but didn't specify any sizes for them. However, two similar funds awaiting regulatory approval in the U.S. are the 61,800-metric ton J.P. Morgan Physical Copper Trust and the 121,200-metric ton BlackRock iShares Copper trust.

The LME recently has attracted attention after it revealed that a single trader holds the majority of exchange-certified copper stockpiles. J.P. Morgan Chase & Co. is the trader in question, according to The Wall Street Journal, which cited people familiar with the matter. The people said J.P. Morgan bought the copper on behalf of a client.

Copper prices were already trading higher earlier in the day thanks to a weaker dollar. However, the dollar steadily strengthened during the U.S. trading day, putting most commodities—with the exception of copper—in negative territory.

Talk of a possible interest-rate increase in China also resulted in a moderation of Tuesday's rise in copper futures.

Traders took heed that China may raise interest rates this weekend, ahead of releasing the November inflation data. China has fought to rein in its roaring economy and high inflation with a variety of tightening measures. In October, the world's largest copper user hiked interest rates for the first time in two years.

"China is the big buyer in copper, and if they do raise rates it could affect their demand," said Adam Klopfenstein, senior market strategist with Lind-Waldock, a division of MF Global.