Shanghai copper eased, LME Bounces

SINGAPORE, Jan 7 (Reuters) - Shanghai copper eased on Monday after London futures tumbled from a two-month high in the previous session on growing fears of recession after weak U.S. jobs data.

The March copper contract , the most active on the Shanghai Futures Exchange, fell 70 yuan to 59,730 yuan ($8,213) a tonne at 0215 GMT, after rallying 4 percent on Friday.

"There was some very strong buying at the open despite the performance in London on Friday.

Shanghai is following China's physical market which is tight," a trader at an international brokerage in Shanghai said.

But an initial upside flurry was capped by broker selling, and that the medium and longer term outlook for copper was bleak, he added.

Analyst Pang Ying at trading house Rongtop said: "There are a number of factors affecting the copper market. Supporting prices are production cuts at two big producers, which are helping to squeeze the market.

"But worries about demand are growing," she added, suggesting that London copper would hover around $7,000, while Shanghai futures would range around 60,000 yuan until the Lunar New Year.

Copper for delivery in three months on the London Metal Exchange rose $65, at $6,990 a tonne. Copper hit a two-month high of $7,135 on Friday before U.S. non-farm payrolls numbers were announced.

"I don't think this will be prosperous year for the U.S. macro economy," the Shanghai dealer said.

"It's hard to say whether we will get a recession. If that happens the market will turn bearish for several years and even if we avoid a recession, once tightness in Shanghai evaporates, prices will test the downside. Longer term, $5,000 could be the level we are looking at."

U.S. data showed 18,000 new jobs were created in December, versus forecasts for a gain of 70,000 jobs, after a gain of 94,000 in November.

"Slow jobs growth, along with the shortages of mortgage and business credit, declining home prices and residential construction, and falling industrial production, indicate the risk of a recession for 2008 is high," Professor Peter Morici at the University of Maryland School of Business said.

He noted that growth in Asia and China in particular was driving up prices of industrial commodities, such as oil and base metals, fuelling inflation not only in the United States but around the world, which the Fed would find hard to combat.

"The Federal Reserve is in crisis, because its mix of policies addresses an old style recession," he said, adding: "The stuff of blackboard economics, taught by Ben Bernanke back at Princeton and this professor at Maryland and Maine, just won't get the job done.:

Shanghai March zinc rose 255 yuan, to 20,415 yuan a tonne, while LME zinc gained $10 to $2,510.

Hunan Nonferrous Metals Corp, China's top producer of zinc, said late on Sunday its units, Shanghai-listed Zhuzhou Smelter Group Co Ltd and Shenzhen-listed China Tungsten and Hightech Materials Co, would suspend trading on Monday, pending a statement.