LONDON, Aug 17 (Reuters) - Copper prices snapped back on Thursday after touching their lowest level in 2-1/2 months, tracking a recovery in the currency of top metals consumer China after support measures.
Three-month copper on the London Metal Exchange (LME) was up 0.6% at $8,213 per metric ton by 0945 GMT after hitting $8,120, its lowest since June 1.
The gains followed China's central bank injecting more liquidity into the market to support financial assets and major state-owned banks selling dollars to buy yuan.
"The bounce in the renminbi is why we are seeing the bounce in copper," said Ole Hansen, head of commodity strategy at Saxo Bank in Copenhagen.
"We have a correlation between copper and the offshore renminbi of close to 90, based on concern about the Chinese economy and the outlook for demand. I haven't seen a correlation this high for a while."
Hansen said copper had initially slid on worries that more U.S. rate hikes may be needed after the release of Federal Reserve minutes.
At Thursday's low, LME copper had shed over 8% since hitting its strongest in over a month at the start of August.
Copper had surged during July on hopes for more stimulus in China, but fell back on disappointment about the slow pace of government measures.
Capping the gains was a firmer dollar index, which touched a two-month high, making greenback-priced commodities more expensive to holders of other currencies.
LME cash zinc flipped to a discount of $4.25 a ton over the
three-month contract
LME aluminium gained 0.8% to $2,160 per metric ton, nickel advanced 1.5% to $20,100, zinc gained 0.6% to $2,297, lead added 0.5% to $2,131 while tin fell 0.5% to $24,940.
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($1 = 7.3040 yuan) (Reporting by Eric Onstad; editing by Jason Neely Additional reporting by Mai Nguyen in Hanoi)
