(Reuters) - Copper hit its lowest in six months on Friday, swept lower with other financial markets as weak German and U.S. data and a downgrade to some of the world's major banks deepened concerns about the global economy and demand for raw materials. Three-month copper on the London Metal Exchange extended losses into a third straight session, falling 0.7 percent to $7,289 a tonne by 0548 EDT. It touched a session low of $7,219.50, its weakest since December 19, 2011. Investors have been retreating from riskier assets after China's factory sector shrank for an eighth straight month, business activity in the euro area contracted for a fifth month and U.S. manufacturing grew at its slowest pace in 11 months. German business sentiment fell to its lowest level in over two years, and Moody's cut the credit ratings of 15 global banks including JPMorgan (JPM.N) and Morgan Stanley (MS.N). "Markets are falling across the board on a whole lot of negative macro news flow out yesterday, in particular from China and United States. That seems to be the focus point at the moment," said Macquarie commodities analyst Duncan Hobbs. Oil touched its lowest in 18 months and European stocks fell after data showing German business sentiment fell for a second straight month in June to its lowest level in over two years. Copper has lost more than 14 percent this quarter and analysts see room for the industrial metal to drop further. "Commodity prices have come off quite substantially over the last few months so we would expect them to reach the natural bottom, but notwithstanding more shocks, the risks are still to the downside," said Matt Fusarelli, analyst at Australia-based consultancy AME Group. A firmer dollar, which makes dollar-priced assets more costly for users of other currencies, also weighed on copper and the other base metals. Chinese players were away for a public holiday, helping hold off what could have been a big sell-off in Chinese markets in response to the slide in global markets overnight. Ahead of a summit in Brussels next week, leaders of Germany, France, Italy and Spain will meet in Rome on Friday, hopefully to find ways to restore confidence in the euro zone. BLESSING IN DISGUISE The sharp decline in industrial metals prices has prompted many producers to review expansion projects, with some getting postponed until a clearer demand picture emerges. That might be eventually good for prices, said AME's Fusarelli. "The longer that we see prices depressed, a lot of the planned projects will be re-examined so a lot of the oversupply which we think was expected in 2014, say for copper, there's now a question mark around it. "For a lot of the producers, the current market movements may in turn be a blessing in disguise," he said. In aluminum, for example, Fusarelli said because current prices means nearly three quarters of the world's capacity is either breaking even or loss making, many smelters have shut down, some of them permanently. Aluminum smelters in China's Xinjiang province have as much as halved their capacity expansion plans for 2012 due to low metal prices and costly power, analysts say. China is the world's top producer and user of the metal. Aluminum was up 0.3 percent at $1,875 a tonne, after hitting a two-year low of $1,854. It closed at $1,870 on Thursday. For now, base metals prices may fall further before any strong rally sets in, with Chinese demand also staying sluggish. A fall in LME copper prices to six-month lows earlier this month helped narrow the price gap between Chinese and international copper prices, encouraging local traders to export excess inventory. In May, China exported 102,375 tonnes of refined copper, nearly four times more than in April, with most of the shipments bound for South Korea. MTL/CHINA1 Tin was at $18,549 from $18,800 at the close on Thursday while zinc was at $1,814 from $1,824. Lead was at $1,820 from $1,827, and nickel was $16,351 from $16,450.

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