LONDON - Copper rose on Friday, moving further away from five-month lows hit in the previous session as the dollar weakened, but investors remained cautious of a still volatile market.

Copper for delivery in three months on the London Metal Exchange (LME) was at $8 885 a tonne by 1258 GMT, adding to modest gains on Thursday when it bounced off five-month lows.

The metal used in power and construction closed at $8 725 a ton on Thursday, rising back from its lowest since Dec 1 hit earlier in that session.

"It was a pretty impressive performance (yesterday) and shows there is underlying interest," Credit Agricole analyst Robin Bhar said.

"We've still got to be cautious because the volatility is telling us there is a high degree of uncertainty in the market."

The dollar extended losses against the euro on Friday after U.S. inflation data did little to sway Federal Reserve rate hike expectations.

A weaker dollar makes commodities like metals cheaper for holders of other currencies.

In macroeconomic news that may move metals via currencies, investor attention will turn to U.S. durable goods and factory orders benchmark revisions, due at 1400 GMT.

On Thursday, upward revisions to March U.S. retail sales data suggested consumer spending in the first quarter might have been stronger than initially thought, although April's data posted its smallest rise in nine months.

For the week, LME copper is largely flat, following a fall of some 5 percent in a broad commodity rout the previous week.

But some analysts warn of more volatility in commodity prices due to uncertainty over the euro zone debt crisis and more monetary tightening measures by top consumer China.

Europe's No.2 copper producer KGHM expects copper prices to average between $8 000 and $9 000 per tonne this year, it chief executive said.

ALUMINIUM STOCKS

Copper demand from China is likely to remain strong despite the country's moves to slow growth to control inflation, the CEO of Europe's largest copper producer Aurubis said.

China hiked its bank reserve requirement ratio yet again on Thursday, signalling that containing inflation and soaking up excess cash remained its top priority even after signs the economy was slowing down.

"Prices will likely move in line with the sentiment surrounding the Chinese fiscal and monetary policy over the coming weeks," Fairfax said in a note.

"The main questions are, are we coming to the end of the government's tightening program? And how much has already been priced into the market?"

Stocks of copper in LME warehouses rose to 468 525 tonnes, nearly 35 percent above levels seen early in December, latest data showed.

LME stocks of aluminium rose by 32 075 tonnes to 4 622 825 tonnes -- within touching distance of the record high above 4,64-million tonnes hit in January 2010.

"It's not surprising because the prompt date is next Wednesday," Bhar said, referring to the expiry for the May contract.

Cash aluminium traded at a premium against the three month contract of $19,50 versus $8 on Thursday.

Three-month aluminium was at $2 615,50 a tonne from $2 615 a tonne. Zinc was at $2 188 a tonne from $2,140 while lead was at $2 336,75 a tonne from $2 305.

Tin was at $29 400 from $2 ,300 a tonne and nickel at $24 730 from $24 500 a tonne.

Source: http://www.miningweekly.com/article/copper-extends-gains-as-the-dollar-weakens-2011-05-13