* Markets eye Italy bond auction for direction * Physical copper demand dries up ahead of Lunar New Year * China shuts Jan. 22 for the Lunar New Year celebrations By Melanie Burton SHANGHAI, Jan 13 (Reuters) - London copper slipped in Asian trading, snapping three days of gains, as buying by Chinese consumers of the industrial metal slowed before the start of the week-long Lunar New Year holidays. Three-month copper on the London Metal Exchange lost 0.97 percent to $7,927.50 a tonne by 0328 GMT. Prices are headed for a 4.6 percent gain this week, after two straight weeks of declines. The most-traded March copper contract on the Shanghai Futures Exchange gained 0.21 percent to 57,520 yuan ($9,100) a tonne. Copper shot to a more than two-month high above $8,000 per tonne on Thursday after data showing slower inflation in China and two successful European debt auctions boosted investor confidence that demand will rise. But for now, interest from Chinese consumers has tailed off ahead of the long Lunar New Year break, and orderbooks so far for 2012 look meagre, said Grace Qu, a copper analyst with consultancy CRU in Beijing. "Maybe European debt issues will exacerbate copper during the Lunar new year, so consumers are not purchasing a lot of cathode. They are very cautious, they will just take profits," Qu said. China's businesses are shut the week of Jan. 22 for the Lunar New Year celebrations. "Credit is tight, but that is not the biggest difficulty for them, it is a shortage of new orders. One example is a wire and cable producer, usually they would use 200-300 tonnes of cathode a day, but currently they are using less than 50," she added. China is the world's biggest copper consumer, accounting for around 40 percent of refined demand. Some support was coming from improved investor risk appetite, traders said. Asian shares rose to a one-month high and the euro clung near its strongest in a week on Friday as strong demand for Spanish and Italian debt sales tempered risk aversion ahead of another auction from Rome later in the day. Other data that might affect risk sentiment includes fourth quarter results from JPMorgan Chase at 1200 GMT. "It's the start of a new year, there's some new money coming in, there's index rebalancing and short covering. But the Chinese come in and sell it every day," a Singapore based trader said. "SHFE spreads have fallen back into contango and that should tell you something about demand," he said. Front month copper on the Shanghai Futures Exchange fell to a discount of 750 yuan against the third-month contract on Thursday, the steepest discount in ten months. Base metals prices at 0328 GMT Metal Last Change Pct Move YTD pct chg LME Cu 7927.50 -77.50 -0.97 4.31 SHFE CU FUT MAR2 57520 120 +0.21 3.90 HG COPPER MAR2 360.55 -4.35 -1.19 4.93 LME Alum 2147.00 -15.00 -0.69 6.29 SHFE AL FUT APR2 16145 -70 -0.43 1.89 LME Zinc 1940.00 -27.00 -1.37 5.15 SHFE ZN FUT MAR2 15175 -10 -0.07 2.57 LME Nickel 19500.00 -200.00 -1.02 4.22 LME Lead 2017.00 -18.00 -0.88 -0.88 SHFE PB FUT 15370.00 -30.00 -0.19 0.56 LME Tin 20990.00 -80.00 -0.38 9.32 LME/Shanghai arb^ 1081 Shanghai and COMEX contracts show most active months ^ LME 3-month copper in yuan, including 17 pct VAT, minus SHFE third month ($1 = 6.3178 Chinese yuan) ($1 = 6.3178 Chinese yuan) (Additional reporting by Jane Lee; editing by Miral Fahmy)

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