Copper rose on Monday to touch a near three-week high after pro-bailout parties in Greece won a slim parliamentary majority to avert an immediate euro zone crisis, but traders expect the relief rally to be short-lived as debt concern lingers.

 

The euro jumped to a one-month high and Asian shares also rose on Monday as the election results buoyed appetite for riskier assets. A victory for the leftists would have led to a Greek exit from the euro zone, plunging the single currency bloc into chaos. 

 

Three-month copper on the London Metal Exchange jumped to a session peak of $7,615 a tonne, its highest since May 30, but later gave up some gains to be up about 0.6 percent at $7,558.50 by 0353 GMT.

 

The most-active September copper contract on the Shanghai Futures Exchange also touched a near-three week high of 55,570 yuan, nearly 1 percent higher than its prior close, before paring 430 yuan by its midday close.” The Greek news gave prices a welcomed short-term boost, but upward momentum is weak and prices are in for a bit of narrow-range volatility. Unless we get more good news soon, this rally is not sustainable over a longer term," said a Shanghai-based copper buyer.

Although fears of a tumultuous euro zone exit by Greece have been soothed by the election result, concern remains about the health of Spanish banks, which were granted a 100 billion euro bailout last week, as well as the euro zone's fiscal health in general after Spain and Italy's borrowing costs recently spiked.

 

In a sign that the bears were still lurking around the corner, latest data from the Commodity Futures Trading Commission showed hedge funds and pension funds extending their bearish copper bets for a second week in a row last week,turning in their largest net short holding since March 2009.

Investor sentiment was also boosted by France's parliamentary election results on Sunday, which saw President Francois Hollande's Socialists win a resounding majority, strengthening his position to press Germany to support debt-laden states that have been weighed down by austerity cuts and ailing banks.

Meanwhile, all eyes are on a Group of 20 summit in Mexico on Monday and Tuesday, which many expect will result in the world's major economies agreeing on new crisis-fighting loans to the International Monetary Fund in view of the euro zone debt crisis.

 

"I believe G20 leaders will indicate some kind of mutual understanding on the loan issue, but I doubt they can come up with something concrete right away. It all goes to show that solving the euro zone crisis takes time, something that major funds have factored in," said the copper buyer. In the United States, further gloomy data that showed factory output shrinking in May added to signs that the economy's recovery is on shaky ground.

 

The spate of weak data will keep investors looking for more clues on the chances of a third round of quantitative easing at the U.S. Federal Reserve meeting this week.

 

Separately, the Japanese government approved on Monday incentives for renewable energy that could unleash billions of dollars in clean-energy investment - a move that would boost Japan's demand for industrial metals in the medium term.