LONDON, April 25 (Reuters) - Copper rose to a one-week high on Thursday, the second day of gains, on signs of industry restocking in top consumer China and hopes for more central bank easing after weak economic data in Europe.
Short-covering also spurred three-month copper on the London Metal Exchange (LME) to hit a session peak of $7,197 a tonne, its highest since April 17. It closed at $7,180 on Thursday from $7,029.50 at the close on Wednesday.
On Wednesday copper rebounded 2.3 percent after hitting an 18-month low of $6,762.25 a tonne on Tuesday. It has shed about 10 percent so far this year.
"All the signs suggest to me that there is some very, very good buying coming out of China, and it's probably the end-users taking advantage of very low copper prices to rebuild their inventories that have been at extremely low levels," said Nic Brown, head of commodities research at Natixis in London.
"There are reports of falls in (Chinese) bonded warehouse stocks, very high trading volumes, a significant increase in open interest (in Shanghai), and a rise in physical premiums."
The most-traded August copper contract on the Shanghai Futures Exchange rose 2.7 percent to close at 51,280 yuan ($8,300) a tonne.
Open interest in the most active ShFE copper contract had reached a record high near 420,000 lots on Tuesday, when prices hit the lowest in almost three years.
But as prices bounced on Wednesday, open interest fell 14 percent, reflecting a shutdown of short positions, which traders said continued on Thursday.
Book-squaring in China, ahead of next week when markets will be closed for three days due to Labour Day holidays, fuelled short-covering in Shanghai.
"Below $7,100 we are still going to stay in the lower range, although trade will be choppy. Above that level I think people might start to see how deep their pockets are," a Hong Kong-based trader said.
Copper prices may not make significant gains until the import arbitrage window opens again between China and the LME after bonded warehouse stocks have eroded more, Brown added.
Recent weak economic data have had a two-pronged impact on LME metals - capping gains due to uncertainty about demand from a sluggish global economy, but also providing some support recently after signals that the European Central Bank could cut rates as soon as next week.
Also, data indicating resilience in the U.S. labour market has allayed concerns about the pace of the economic recovery.
DOWNSIDE SEEN FOR ZINC
LME zinc reversed earlier losses to close at $1,936 from $1,919 a tonne at the close on Wednesday.
Analyst Colin Hamilton at Macquarie in London said weak zinc prices last year spurred shutdowns in Chinese smelter capacity but failed to have an impact on mine supply, resulting in a further surplus in concentrates.
"As such, we feel that zinc prices still potentially have decent downside from current levels, in order to cause pressure on concentrate supply," he added in a note.
Zinc touched a low of $1,816.50 a tonne on April 18, the weakest since last October, when prices fell to $1,812.50. Last year's lowest level of $1,745 was hit in June.
Nickel also reversed earlier losses to close at $15,440 from $15,270 on Wednesday. During that session it slid as low at $15,075, the lowest since July 2009. LME stocks were at record peaks above 175,000 tonnes.
Tin closed at $21,110 from $20,900, aluminium at $1,942 a tonne from $1,911, and lead at $2,076.50 from $2,045.