* Copper price dip attracts bargain hunters, short coverers * Technicals, euro zone debt crisis to limit gains * ShFE front-month copper at premium to benchmark month * Funds cut net longs in copper last week - CFTC (Updates prices; adds quotes, details) By Carrie Ho SHANGHAI, May 21 (Reuters) - Copper extended gains on bargain-hunting, short-covering and a weaker dollar on Monday, after it bounced off four-month lows in the previous session. But market participants warned that the upward momentum may be short term as they look for trading cues from Europe, where political problems threaten to drive Greece out of the euro zone and highly indebted Spanish banks keep Spain's borrowing costs high. Three-month copper on the London Metal Exchange rose 1.3 percent to $7,749 a tonne by 0330 GMT, after inching up on Friday. The most-active August copper contract on the Shanghai Futures Exchange climbed 1.6 percent to 56,090 yuan ($8,900) a tonne by its midday close, after falling 0.4 percent the session before. "Some technical buying during the session should cause the metal's prices to flourish a bit, with stop-loss selling coming in at around $7,780. I see copper ranging from $7,600 to $7,800," said an LME trader. "I suspect there is still some short-covering boosting the market, especially since there is a backwardation in ShFE copper," he added. The trader was referring to how the ShFE copper front-month June contract had started trading at a higher price to the benchmark August contract earlier this month. The premium, which is now at 220 yuan, suggested higher demand for immediate supply. This could be due to China's smelters and merchants delivering around 110,000 tonnes of refined copper cathode to LME warehouses in South Korea, as reported by traders. The rare hefty outflow of inventories could pressure copper prices. Orient Futures Derivatives department director Andy Du said the dollar's weakness also helped boost copper prices during the session. The greenback slipped against a basket of currencies on Monday after rising to four-month highs in the prior session. Although financial markets recovered some ground after heavy losses last week, investors remained wary about the euro zone despite G8 leaders' calling for Greece to stay in the monetary union and for Europe to balance austerity with growth. European officials are working on contingency plans in case Greece bombs out of the euro zone, the EU's trade commissioner said on Friday. Meanwhile, money managers monitored by the Commodity Futures Trading Commission (CFTC) slashed their net long positions in copper on Friday, reducing them by the largest amount since start of April. This reflects weakening confidence in commodities markets and mounting concerns on euro-zone concerns. Base metals prices at 0330 GMT Metal Last Change Pct Move YTD pct chg LME Cu 7749.00 99.00 +1.29 1.96 SHFE CU FUT SEP2 56090 860 +1.56 0.83 LME Alum 2066.50 -1.50 -0.07 2.30 SHFE AL FUT SEP2 16135 115 +0.72 1.86 HG COPPER JUL2 349.90 3.05 +0.88 1.83 LME Zinc 1915.00 20.00 +1.06 3.79 SHFE ZN FUT AUG2 15015 160 +1.08 1.49 LME Nickel 17039.00 214.00 +1.27 -8.93 LME Lead 1977.50 11.50 +0.58 -2.83 SHFE PB FUT 15285 210 +1.39 -0.03 LME Tin 19600.00 -45.00 -0.23 2.08 LME/Shanghai arb 1056 Shanghai and COMEX contracts show most active months ^ LME 3-m copper in yuan, including 17 pct VAT, minus SHFE third month ($1 = 6.3284 Chinese yuan) (Reporting by Carrie Ho; Editing by Joseph Radford and Chris Gallagher)

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