* German ZEW index falls in May, euro down vs the dollar
(Updates prices and comments)
By Humeyra Pamuk and Rebekah Curtis
LONDON, May 18 (Reuters) - Industrial metals bounced on Tuesday from a sharp sell-off in the previous session, but looked vulnerable due to ongoing worries about austerity steps in the euro zone and policies that could cool Chinese growth.
Copper for three-months delivery on the London Metal Exchange rose to $6,712 a tonne at 1414 GMT, up some 4 percent from a close of $6,470 on Monday when the metal used in power and construction slid some 7 percent to its lowest since Feb. 9.
Nickel prices rose over 6 percent to as high as $21,975.
Metals tracked the euro which edged up in choppy trade after an initial fall, bouncing from the previous day's four-year lows and cheapening industrial metals for non-U.S. investors.
German investor sentiment fell sharply in May on concern growth will be stifled by a 750-billion-euro ($930 billion) rescue package designed to calm market fears of a wave of Greek-style debt crises.
"Things have bounced a bit but were not out of danger yet," said Robin Bhar, an analyst at Credite Agricole. "There's a lot of fear still which hasn't been resolved so I'm sure we'll resume the down trend in due course," he added.
The closely watched ZEW analyst and investor survey saw medium-term growth down in Europe's biggest economy.
Traders say the fear now is that current problems in the region could drag the euro zone into a financial crisis, which would hit its economic growth and demand for metals.
"People are troubled by Europe, the markets believe there are going to be defaults from weaker European countries. This waiting game is going to play out over quite a long time."
"CHINA WILL DO FINE"
Investors also fret demand from China could soften as the world's top metals consumer reins in growth.
China's key stock index rose 1.4 percent after tumbling more than 5 percent the session before, its biggest drop in over eight months as a severe state clampdown on runaway property prices hit property stocks.
But some analysts believe the worries are exaggerated.
"We think the markets are too concerned about China," said Jesper Dannesboe, senior commodity strategist at Societe Generale. "We think China is going to do just fine in terms of growth over the next couple of years, including heavy infrastructure spending."
Falling LME copper stocks indicate healthy demand. Inventories last fell 1,025 tonnes, bringing the total to 483,150 tonnes, the lowest level since end-December.
The most striking move in inventories was on aluminium, which last showed a massive rise of 36,600 tonnes, taking the total to 4.51 million tonnes and close to the record highs.
LME aluminium, which slid more than 5 percent in the previous session, was at $2,074 a tonne from Monday's $1,990.
The cash to three-month contango, the premium for the three months contract over the cash price, has narrowed significantly this week, reflecting tightness in the market. Stoking market tightness, data showed a dominant position holding 50-80 percent of LME aluminium warrants and cash positions as of the close of business on Friday.
Nickel firmed to $21,800 a tonne from $20,700 while the world's top nickel miner Norilsk Nickel posted a return to profit in 2009.
Tin gained to $17,300 a tonne from $17,150 a tonne amid rising tin exports from Indonesia, the world's top exporter of the metal.
Battery material lead was at $1,855 a tonne from $1,805 while zinc rose to $1,950 a tonne $1,899. Metal Prices at 1419 GMT Metal Last Change Percent Move End 2009 Ytd Percent
move COMEX Cu 303.00 10.70 +3.66 332.75 -8.94 LME Alum 2075.00 85.00 +4.27 2230.00 -6.95 LME Cu 6727.00 257.00 +3.97 7375.00 -8.79 LME Lead 1848.00 43.00 +2.38 2432.00 -24.01 LME Nickel 21725.00 1025.00 +4.95 18525.00 17.27 LME Tin 17175.00 -375.00 -2.14 16950.00 1.33 LME Zinc 1941.00 -114.00 -5.55 2560.00 -24.18 SHFE Alu 15225.00 50.00 +0.33 17160.00 -11.28 SHFE Cu* 53730.00 140.00 +0.26 59900.00 -10.30 SHFE Zin 15700.00 -425.00 -2.64 21195.00 -25.93 ** 1st contract month for COMEX copper * 3rd contract month for SHFE AL, CU and ZN SHFE ZN began trading on 26/3/07 (Additional reporting by Manolo Serapio Jr. in Manila; editing by Keiron Henderson)
