SHANGHAI, Oct 17 (Reuters) - London metals futures bounced on Friday, with zinc up 6 percent, bolstered by overnight gains in equity markets that helped a recovery from heavy losses in the last trading session.
But Shanghai metals were still playing catch up with earlier moves in London, which they have failed to match due to daily limits on trade. Aluminium joined the upward charge, hitting its 5 percent daily threshold, but copper and zinc fell to their daily downside limits.
A strong close for Wall Street on Thursday, with the Dow Jones industrial average up more than 4 percent, helped underpin stock markets in Asia, but investors remain largely cautious about the near-term outlook given continued signals the global economy is headed for a potentially deep recession.
'The interesting question is whether a recession really will result in sufficient demand destruction to warrant a 60 percent retracement in prices,' said Jonathan Barratt, at Commodity Broking Services in Sydney.
'In previous recessions, prices fell by a quarter. Look at zinc - it's gone from $4,500 to $1,250. Does a drop in growth of say 3 percent really require that kind of pullback?'
London Metal Exchange copper surged as much as 6.4 percent to $4,960 a tonne, after dropping more than 5 percent to a 33-month low during the previous session.
The metal later pared gains to $4,760 a tonne by 0346 GMT.
Shanghai aluminium opened up by its 5 percent daily limit, but eased to a 3.4 percent gain by midday after its LME counterpart edged back to a 1.8 percent increase at $2,220 a tonne.
Aluminium in London has fallen by 34 percent from its all-time peak reached in July, with London stockpiles of 1.47 million tonnes.
'With stocks at these levels you can argue that aluminium prices should go lower, especially as crude has come off so sharply,' Barratt said.
Other metals in China sank, with copper hitting its downside limit at 37,610 yuan a tonne ($5,504), the lowest since December 2005. Shanghai zinc tumbled by its 6 percent daily limit to 10,450 yuan, a new lifetime low for the benchmark contract.
'Shanghai traders are following London's movement closely as they are eager to catch latest information on the international market and from the global recession,' said analyst Cai Luoyi at China International Futures.
'Furthermore, China imported more copper in September and the momentum is expected to continue in October and coming months, but local demand has weakened,' he said.
Copper inventories in warehouses monitored by the Shanghai Futures Exchange are likely to have risen by nearly 20 percent in the week that ended on Thursday, as imports surged but demand weakened.
Metal Prices by 0344 GMT:
Metal Last Change Pct Move End 2007 Pct chg 08
LME Cu 4760.00 100.00 +2.15 6670.00 -28.64
SHFE Cu* 37610.00 -1980.00 -5.00 56880.00 -33.88
LME Alum 2220.00 40.00 +1.83 2403.00 -7.62
SHFE Alum* 14065.00 465.00 +3.42 18180.00 -22.63
COMEX Cu** 209.90 0.00 +0.00 304.10 -30.98
LME Zinc 1248.00 68.00 +5.76 2370.00 -47.34
SHFE Zinc 10450.00 -670.00 -6.03 18950.00 -44.85
LME Nickel 11500.00 550.00 +5.02 26350.00 -56.36
LME Lead 1420.00 60.00 +4.41 2550.00 -44.31
LME/Shanghai arb^ 439
Dollar/yuan 6.8320 \ 6.8330
** 1st contract month for COMEX copper
* 3rd contact month for SHFE aluminium, copper and zinc
^ LME 3-m copper in yuan, including 17 pct VAT, minus SHFE third month
