CRISIS JOLTS SUMITOMO, TRADERS : COPPER MARKETS REEL FROM SCANDAL AS PROBES BEGIN.

Byline: Rob Wells Associated Press 

Around the world, regulators moved Friday to calm copper markets thrown into turmoil by a Sumitomo Corp. disclosure that a rogue trader hid up to $1.8 billion in losses.

In London, Britain's Serious Fraud Office and local police opened a fraud investigation.

The activity comes after Sumitomo, a giant Japanese investment company with $152 billion in sales last year, disclosed that its powerful copper trader, Yasuo Hamanaka, 48, falsified the company's books and records to cover up losses over a 10-year period.

The disclosure jolted the world's copper markets. On the London Metal Exchange, the contract for delivery in three months dropped as low as $1,860 a metric ton, down from $2,145 at the close of trading Thursday. It later recovered partly to $1,980.

In the United States, copper for July delivery fell sharply, down 10.3 cents to 93.85 cents a pound on the Comex division of the New York Mercantile Exchange.

Aside from the intense price volatility, the Sumitomo scandal's impact on U.S. firms and the financial markets as a whole appeared limited. But big copper mining companies expressed concern about the impact. Even the finance minister of Chile, one of the world's leading copper producers, got spooked.

``The fall of copper prices worries me because it reduces our fiscal income,'' Finance Minister Eduardo Aninat told a news conference in Santiago.

Sumitomo, which controls much of the world's copper production, didn't directly deal on the Comex or any U.S. commodities markets, although its activities certainly affected global copper prices. Regulators and traders both here and abroad were counting on Sumitomo's promise to stand fully behind its trades and other obligations.

Regulators said they weren't concerned that U.S. firms active in the London market, such as Merrill Lynch & Co., would be damaged.

Traders in New York said they suffered relatively few losses compared to their counterparts overnight in London, where traders are freer to borrow money to play the market.

Regulators say the focus of their investigations is in London, where Hamanaka's trading was heaviest. Britain's Serious Fraud Office, which probes complex financial crimes, announced it was opening an investigation of the Sumitomo matter after discussions with Britain's main financial markets regulator, the Securities and Investment Board.

Ceinwen Jones, a spokeswoman at the Serious Fraud Office, declined to provide further details or say if Hamanaka was a target of the probe. The London Metals Exchange, where 94 percent of the world's copper is traded, and the Securities and Investments Board said they were investigating the copper markets, in cooperation with the CFTC.

The scheme came to an end in early May, when Hamanaka slipped and registered one of his off-the-book deals through the regular channels of company accounting. Company auditors questioned this transaction, which led to his removal in the day-to-day copper trading. Hamanaka admitted the improper trades and he was fired. He could face criminal charges in the United States and Britain, Sumitomo officials said.

COPPER SHARES DROP Copper mining stocks fell as Sumitomo Corp.'s disclosure that its copper trading chief concealed as much as $1.8 billion in losses caused metal prices to plunge.

Shares of Phelps Dodge Corp., the nation's largest copper producer, fell 1/2 to 65. Asarco Inc. dropped 3/4 to 28 3/8, while Cyprus-Amax Minerals Co. fell 5/8 to 23 7/8. Freeport-McMoRan Copper & Gold Inc. shares dropped 3/8 to 30 1/2.

Metal prices declined to two-year lows. July copper fell 10.3 cents to 93.85 cents in trading on the New York Mercantile Exchange Comex division, the lowest since May 1994.

The Standard & Poors Diversified Metals Index, which contains stocks of the four largest U.S.-based copper producers, fell 3.71 to 302.35.

About 40 percent of U.S. copper production is hedged, said Vahid Fathi, an analyst at Everen Securities. For example, Phelps Dodge has a series of put arrangements for 90 cents to 95 cents through the first quarter 1997.

CAPTION(S):

2 Photos, Box

Photo: (1--color) In the wake of Sumitomo revelatio ns, copper traders shout transactions Friday in the New York Mercantile Exchange.

(2--color) Sumitomo Corp. President Tomiichi Akiyama, right, tells reporters in Tokyo an alleged rogue trader had acted alone.

Associated Press

Box: COPPER SHARES DROP (see text)