Copper up on China factory data, but caution reigns

* China official PMI at 11-month peak in March
* Euro zone manufacturing shrinks for eighth month
* Coming Up: U.S. ISM Manufacturing,

1400 GMT By Maytaal Angel LONDON, April 2 (Reuters) - Copper rose on Monday buoyed by upbeat Chinese manufacturing data that helped calm worries over demand prospects in the world's top copper consumer, though concerns lingered about the overall pace of growth in China. A stream of new orders buoyed factory activity in China to an 11-month high in March, according to the official PMI, but credit-constrained smaller manufacturers struggled, suggesting the economy is still losing steam. Three-month copper on the London Metal Exchange edged up 0.29 percent to $8,469.25 a tonne by 0917 GMT from $8,445, with volumes decent at around 4,400 lots considering Shanghai markets are closed from Monday to Wednesday for a public holiday. "The market had already discounted that small and medium (Chinese) companies are struggling so the news that the biggest companies are doing slightly better than expected prompted some short covering," said Gianclaudio Torlizzi, analyst at metals consultancy T-Commodity. But he added: "We don't buy today's move as the beginning of a bullish phase because we think the Chinese economy is still slowing down and at the same time the central bank is not yet willing to cut interest rates." Also capping gains in metals, the euro zone's manufacturing sector shrank for an eighth month and at a faster pace in March, adding to signs the bloc is in recession as the downturn spread to core members France and Germany. Investor focus turns to the U.S. Institute for Supply Management manufacturing data due later in the day, which Credit Suisse said "is likely to confirm economic stabilization once again". Latest U.S. data released on Friday showed U.S. consumer spending increased by the most in seven months in February as households shook off a rise in gasoline prices, leading economists to raise forecasts for first-quarter growth. "The U.S. ISM data today is likely to confirm economic stabilization once again. We think prices can stabilize and trade sideways this week," said Credit Suisse analysts in a note. They also pointed to falling stocks in China, where latest data showed a drop in Shanghai copper stocks in the past two weeks from near-decade high levels. LME stocks rose for the third time in about four session, but remained near their lowest since July 2008. LULLED Up about 12 percent this year, copper's fate mostly hangs on China with worries over the debt-strained euro zone easing and the U.S. economy picking up. The rate of slowdown in a country that consumes around 40 percent of the world's copper will be key to whether the industrial metal can build on or erase its year-to-date gain. "We should not be lulled into thinking that China has turned a corner ... Global conditions continue to be highly uncertain, and given that China's finished goods inventory has recovered quite steadily, room for further inventory building may be limited," said Vishnu Varathan, market economist at Mizuho Corporate Bank. In other metals traded, aluminium edged up 0.05 percent to $2,127 a tonne from $2,126, while stainless-steel ingredient nickel rose 0.86 percent to $17,978 from $17,825. State-run Aluminium Corp of China Ltd agreed to pay $926 million for a controlling stake in Mongolian coal miner SouthGobi Resources in a deal with mining billionaire Robert Friedland's Ivanhoe Resources. The deal marks the first foray into coal by Chalco, which is facing a bleak outlook in aluminium, and will give it access to a large coal producer in neighbouring Mongolia. On nickel, which has risen just 1 percent in the year to date, making it the worst performing metal in the complex to date, analysts are turning decidedly more optimistic, saying the selling has been overdone given changing fundamentals. "Feedback from the recent days suggests Chinese buyers (are) rushing to restock at what are believed to be low prices. This is reflected in rising physical spot premiums over the last week or so," said Macquarie analysts in a note. "The LME nickel price is now trading below domestic prices in China, which makes buying imports more attractive, and currently prevailing price levels are trading below cash production costs for some nickel pig iron production in China." Battery material lead fell 0.49 percent to $2,030 from $2,040, soldering metal tin rose 1.54 percent to $23,150 a tonne from $22,800, while zinc, used in galvanizing rose 0.05 percent to $2,002 from $2,001. Metal Prices at 0923 GMT Comex copper in cents/lb, LME prices in $/T and SHFE prices in yuan/T

  Metal            Last      Change  Pct Move   End 2009   Ytd
 Pct
 
 move
  COMEX Cu       384.50        2.00     +0.52     334.65    
 14.90
  LME Alum      2126.00        0.00     +0.00    2230.00    
 -4.66
  LME Cu        8444.00       -1.00     -0.01    7375.00    
 14.49
  LME Lead      2042.00        2.00     +0.10    2432.00   
 -16.04
  LME Nickel   17825.00        0.00     +0.00   18525.00    
 -3.78
  LME Tin      22750.00      -50.00     -0.22   16950.00    
 34.22
  LME Zinc      2000.00       -1.00     -0.05    2560.00   
 -21.88
  SHFE Alu     16165.00       -5.00     -0.03   17160.00    
 -5.80
  SHFE Cu*     60010.00      270.00     +0.45   59900.00     
 0.18
  SHFE Zin     15445.00      105.00     +0.68   21195.00   
 -27.13
 ** Benchmark month for COMEX copper
 * 3rd contract month for SHFE AL, CU and ZN
 SHFE ZN began trading on 26/3/07