Base metal prices came under pressure on Tuesday and the mood in the complex was dampened by China’s latest measures to tighten monetary policy. This will curb lending and prevent overheating in some economic sectors. China's central bank said it was raising banks' reserve requirements by 0.5 percentage points. China announced on 12 January to raise the deposit reserve ratio by 0.5 percent starting January 18. China’s bank loan issuance in December increased substantially to 500 billion yuan ($73 billion), and the amount in the first week of 2010 surged further to around 600 billion yuan, which has prompted Beijing to raise the deposit reserve ratio to curb the rapid growth in the aspect. Investors now start to worry whether China will also increase its interest rate in the first half of 2010, which will further unsettle the futures market and add downward pressure upon the commodities prices. Copper inventories continue to rise as they rose for the 48th consecutive day to a 10-month high of 517175 tonnes. The red metal touched a low of $7320 on Tuesday on concerns over China’s monetary policy tightening. On the macroeconomic front, the Dollar Index traded on a mixed note on Tuesday as tempered risk trends in the financial markets led to volatility. The currency touched a low of 76.76 yesterday but managed to mark a closing above that. In the early part of the trade the dollar strengthened after stock markets declined and earnings from Alcoa missed market estimates. The dollar took cues from the movement in the equities and general risk sentiment in the markets. An unexpected shift by China’s central bank to restrain lending may foreshadow higher interest rates and a relaxation in the nation’s currency peg against the dollar. Policy makers may follow up by raising their benchmark rate in coming months, rather than waiting until the second half of the year. By moving ahead of the Federal Reserve, which plans to keep rates near zero for an extended period, pressure will rise to allow the yuan to appreciate for the first time since mid-2008. Inflation risks are rising in China as the economy picks up speed. Exports rose for the first time in 14 months in December, trade data showed on Jan. 10. A government report this month is forecast to show gross domestic product increased 10.5 percent in the fourth quarter from a year before, the most since January-to-March 2008. Base metals could trade with a negative bias on concerns over monetary policy tightening in China. If the dollar strengthens then it could add further downside pressure on prices. On the macroeconomic front, the dollar could trade with a positive bias as risk aversion in the financial markets could lead to demand for the low-yielding currency. This strength in the currency could add downside pressure on base metal prices. Copper Copper prices are up with immediate support for MCX February contract seen at Rs.334.30. Further below, crucial support is seen at 331.35 levels. Whereas resistance is seen at Rs.341.00 levels & further upwards at Rs. 344 levels. Zinc Zinc prices are trading up with immediate support seen at Rs.110.00 levels for MCX January contract whereas crucial support is seen at Rs.109 level. Short-term resistance is seen at Rs.113 whereas major resistance is seen at Rs 114.50 levels.

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