Copper prices rose to a 27-month high as inventories declined and the dollar fell, boosting demand for commodities as alternative investments.

Copper stockpiles monitored by the London Metal Exchange have dropped 33 percent since March 1 to the lowest level in almost a year. The greenback fell as much as 0.5 percent against a basket of six major currencies today after the Federal Reserve signaled it would act to sustain the economic recovery.

“A combination of lower supplies and dollar weakness is driving prices higher,” said Donald Selkin, the chief market strategist at National Securities Corp. in New York. “The trend is definitely to the upside.”

Copper futures for delivery in December gained 3.1 cents, or 0.8 percent, to close at $3.8205 a pound at 1:23 p.m. on the Comex in New York. Earlier, the price touched $3.841, the highest level for a most-active contract since July 8, 2008.

If the Fed does not “do as much quantitative easing as expected,” the metal may be “due for a correction,” Selkin said.

Rio Tinto Group, the world’s third-largest mining company, said that it has an “extremely strong view” on copper demand. Prices probably will rise because of continued constraints on mine supply, Matthew Holcz, the general manager of business development at the London-based company’s copper unit, said yesterday.

Copper for delivery in three months climbed $17, or 0.2 percent, to $8,362 a metric ton ($3.79 a pound) on the LME.

Tin, nickel, lead and zinc also rose in London. Aluminum dropped.

To contact the reporter on this story: Yi Tian in New York at Ytian8@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net.

Source: http://www.bloomberg.com/news/2010-10-13/copper-climbs-to-27-month-high-on-prospects-for-demand-weakening-dollar.html