LONDON/SHANGHAI (Reuters) - Copper rose on Tuesday on a softer dollar and prospects of economic stimulus in China, but concerns that Spain's banking crisis could deepen the euro zone debt situation and hit metals demand kept gains in check. Benchmark copper on the London Metal Exchange was at $7,696 a metric ton by 1057 GMT versus $7,689 at the close on Monday. Copper has fallen around 8 percent in May, heading for a third month of losses. "Copper is supported by a weaker dollar and some month-end repositioning. Hedge funds will continue to sell on the increases," said T-Commodity consultant Gianclaudio Torlizzi. "Fundamentals are not bad but the macro picture is worrying. People haven't priced in the European situation yet." The euro hovered near a two-year low with investors worrying about Spain's banking problems, the outcome of Greek elections next week and the health of the global economy. But speculation that China may soon unveil more spending measures to support flagging growth and a view that U.S. data due later in the week will show the recovery in the world's top economy on track helped support equities and commodities. "I think the sense that China might do something is being supportive of metals," Citi analyst David Wilson said. "But nervousness is still the dominant feature. Spain is making people nervous, and markets are waiting to see what on earth happens with the elections in Greece." Spanish 10-year borrowing costs neared the 7 percent danger level after the government, struggling to sort out its finances, proposed putting sovereign debt into the struggling lender. The dollar was softer against a basket of currencies , helping to support copper. A weaker U.S. unit makes dollar-priced commodities more affordable for holders of different currencies. CHINA STIMULUS On Tuesday, state-backed media cited unidentified sources saying that China's biggest banks appeared to have accelerated lending towards the end of this month as Beijing starts to fast track its approval of infrastructure investments. Other reports on stimulus included a 26.5 billion-yuan subsidies package to boost domestic spending and possible tax incentives to support the service outsourcing sector. Last week, Premier Wen Jiabao said China will step up policy fine-tuning to support the economy and construction and infrastructure firms, which use a lot of industrial metals. They are seen as the biggest gainers from China's push to avert a sharp economic slowdown. In other metals, tin was at $20,000 from $19,795 while zinc was $1,911 from $1,910 at Monday's close. Lead was at $1,946 from $1,941.50 and aluminum was $2,020 from $2,022. Nickel was $17,010 from $17,000. (Additional reporting by Susan Thomas; editing by Jason Neely)

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