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(AMM) Base metals rally on short covering

June 21, 2010 - 22:22 GMT Location: New York

KEYWORDS: base metals , yuan , China , LME , Comex

Base metal prices rallied Monday on news of China?s decision to allow the yuan to appreciate, but traders said the overall market reaction was subdued and motivated more by short covering rather than fresh buying.

"A lot of the shorts were going home Friday evening safe in the view that prices would be moving lower Monday. We had negative data from the U.S. last week and swirling concerns about Spain, so they felt safe leaving positions open through the weekend," a London Metal Exchange trader said Monday. "You had a lot of shorts capitulating this morning who didn't expect this one and wanted to get out."

China announced over the weekend that it will make the yuan exchange rate more flexible, removing the yuan-dollar peg instituted at the height of the financial crisis in July 2008. The announcement, tempered by promises of a gradual adjustment, came ahead of the Group of 20 financial ministers meeting in Toronto next weekend.

A second LME trader...

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