Aluminium hits 3-week peak on China demand speculation

Aluminium touched the highest in over three weeks on Wednesday on greater optimism about demand in top metals consumer China and as investors tidied up portfolios towards the year end.

Some European investors may have also been following the lead of counterparts in Asia after some big Chinese commodity funds positioned themselves for a short-term uptick in metals prices despite a poor longer-term outlook.

Much of the focus has been on China's Central Economic Work Conference, which decided to maintain a proactive fiscal policy in 2016, said Xiao Fu, head of commodity market strategy at Bank of China International in London.

"Some of the fiscal expenditures on social development like shanty towns and also infrastructure investment in railways and highways will likely increase next year. That has supported sentiment for base metals along with the production cuts," Xiao Fu said.

Aluminium producers in China have announced planned output cuts.

Three month aluminium on the London Metal Exchange was up 0.9 percent to $1,520.50 a tonne at 1125 GMT after touching a high of $1,524.50, the strongest since November 27. Aluminium, which has shed about 18 percent this year, slipped 0.4 percent in the previous session. Also lifting the market was end-of-year book squaring as investors cashed in short positions, Fu said.

Markets are waiting for more signs that Chinese stimulus measures are having an impact, with early signs of improvement in housing encouraging, but not enough to spark a change in price direction, said analyst Lachlan Shaw at UBS in Melbourne.