* Output, shipments halted at Freeport McMoran's Grasberg copper mine * Base metals at risk of forced sales on funding stress -Credit Suisse * Coming up: U.S. industrial production for August at 1315 GMT By Melanie Burton LONDON, Sept 15 (Reuters) - Copper rebounded on Thursday after European leaders signalled they won't allow Greece to default on its debt, but turmoil in European money markets and a faltering U.S. economy cast doubts over the strength of demand. Three-month copper on the London Metal Exchange traded up 0.7 pct at $8,683 at 0932 GMT, compared with $8,635 a tonne at the close on Wednesday when it fell to its lowest in more than a month at $8,590. Copper has now dropped by 15 percent from record highs of $10,190 a tonne hit in February with calls for it to revisit records this year receding, given an increasingly uncertain economic climate. "The (metals) market is very much driven by the bigger uncertainties in the macro environment," analyst Stefan Graber of Credit Suisse Private Banking said. Helped by signs that euro zone leaders are committed to keeping Greece afloat for now, stock markets rose for a third day on Thursday and the euro steadied, lending a calmer tone to metals. But high costs for European banks to obtain dollar funding may yet lead them to cut credit lines, forcing institutional investors to scale back exposure to risky or cyclical assets, he said. "We are still far from a normal money market environment, so there is still a lot of caution in the system...so base metals are candidates for forced liquidation." French and German leaders urged Greece's prime minister in a conference call late on Wednesday to meet the terms of its new bailout and said they were determined to keep the country in the euro zone. Suggesting metals may see further selling, the euro has been under pressure as market players, spooked by fears that a possible debt default in the euro bloc could unleash a major financial crisis, remain ready to sell the currency and risk assets into any rally. A stronger dollar provides headwinds for commodities because they become more expensive for holders of other currencies. "There is little doubt in our mind that the edge has been taken off physical demand for the base metals during Q3," Standard Bank said in a note. "Our expectations for Q4 are also now starting to look ambitious given the flow of disappointing data. Against this backdrop prices are facing mounting pressure." Later in the session, markets will be watching a string of U.S. economic numbers, including industrial production for August, for indicators on its economic health. OUTPUT PARALYSED Copper supply remains tight and eroding at the edges due to declining ore grades, long lead times before new projects are ramped up and increasing incidences of industrial action as workers seek higher rewards from the copper price bonanza. Production and shipments ground to a halt at Freeport McMoran's Grasberg copper mine in Indonesia after thousands of workers began a month-long strike on Thursday, stoking fears of a global shortage following similar action at a major Peruvian mine. Activity at Grasberg, the world's third-biggest copper mine which also has the world's largest gold reserves, has been "paralysed" while concentrate shipments have been halted. "Supply disruptions are likely to increase tightness in a market facing significant shortages in the coming year or more," says ANZ in a note. "Some commentators are looking for a slide towards $7,000 in the near term before recovering. We think such a dramatic downside move is unlikely. "Appetite from merchants and Chinese consumers is likely to limit the downside to around $8,300-$8,400 and as the market begins to feel the impact of these disruptions, prices should move higher again." Tin was at $23,550 from $23,350 while zinc , used in galvanizing was at $2,193.25 from $2,161 on Wednesday's close. Battery material lead was at $2,385 from $2,343 and aluminium was at $2,373 from $2,360. Nickel was at $21,529 from $21,375. Metal Prices at 0933 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 389.90 1.00 +0.26 334.65 16.51 LME Alum 2359.00 -1.00 -0.04 2230.00 5.78 LME Cu 8630.00 -5.00 -0.06 7375.00 17.02 LME Lead 2343.00 0.00 +0.00 2432.00 -3.66 LME Nickel 21370.00 -5.00 -0.02 18525.00 15.36 LME Tin 23350.00 -300.00 -1.27 16950.00 37.76 LME Zinc 2161.00 0.00 +0.00 2560.00 -15.59 SHFE Alu 17335.00 60.00 +0.35 17160.00 1.02 SHFE Cu* 65080.00 30.00 +0.05 59900.00 8.65 SHFE Zin 16750.00 40.00 +0.24 21195.00 -20.97 ** Benchmark month for COMEX copper * 3rd contract month for SHFE AL, CU and ZN SHFE ZN began trading on 26/3/07

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