June 21 (Bloomberg) -- Copper in London and Shanghai rose after home construction rebounded in the U.S. last month, spurring optimism for sustained demand in the world's second- biggest user of the metal.

Housing starts rose a greater-than-expected 5 percent to an annual rate of 1.957 million, the Commerce Department said yesterday in Washington. The average U.S. home contains about 400 pounds (181.4 kilograms) of copper wire and pipes, according to the New York-based Copper Development Association.

``Prior to these numbers, there was some concern that the U.S. property market was cooling, but the announcement showed that is not the case,'' Cai Luoyi, a metals analyst at China International Futures (Shanghai) Co., said by phone.

Copper for delivery in three months rose as much as $115, or 1.7 percent, to $6,855 a metric ton on the London Metal Exchange. It traded at $6,850 at 3:12 p.m. Singapore time, double from a year ago.

Metal for delivery in September rose 1,180 yuan, or 2 percent, to settle at 59,140 yuan ($7,393) a ton on the Shanghai Futures Exchange when trading ended at 3:00 p.m. local time.

Copper for cash delivery in Changjiang, the biggest spot market in Shanghai, rose as much as 1,400 yuan, or 2.4 percent, to 59,000 yuan a ton. Chinese users have to pay a 17 percent value-added tax, 2 percent import tax, premiums and freight charges for imported copper.

Rates Concern

At its current price, London copper has tumbled 22 percent from a record $8,800 on May 11 amid speculation that rising global interest rates will slow demand for the metal.

The U.S. Federal Reserve's next interest-rate meeting is June 28-29 and investors are betting that the central bank will raise the benchmark interest rate for a 17th time to 5.25 percent from 5 percent.

Copper prices may not extend gains as investors remain concerned that another rise will slow economic growth and crimp metal demand, said China International's Cai.

``Prices are likely to remain volatile as there is no clear direction,'' he said. London prices are likely to trade between $6,500 and $7,000 until the Fed meets, and Shanghai prices may trade around 60,000 yuan, he said.

Interest-rate futures show odds of 100 percent the Fed will lift rates to 5.25 percent this month. The odds of a move to 5.5 percent at its next meeting on Aug. 8 were at 75 percent today, compared with zero percent at the end of May.

London copper must rise above $7,110 a ton to ``relieve the immediate downside threat'' and pave the way for gains up to $7,500, according to charts some traders use to predict price moves, Standard Bank Plc said in a report dated yesterday.

Copper for delivery in September rose 2.4 cents, or 0.8 percent, to $3.1160 a pound on the Comex division of the New York Mercantile Exchange at 3:07 p.m. Singapore time in after- hours trading.

To contact the reporter on this story: Chia-Peck Wong in Singapore at cpwong@bloomberg.net

Last Updated: June 21, 2006 03:18 EDT