(Reuters) - London copper rebounded on Tuesday after data showed July manufacturing output in top metals consumer China grew at its fastest pace in nine months, temporarily easing worries that Spain's debt problems may undermine global demand for metals. The HSBC Flash China manufacturing purchasing managers index (PMI) rose to 49.5 in July from 48.2 in June, growing at the fastest pace in nine months and nearing the 50 level that divides expansion from contraction. "China's PMI data beat market expectations and gave shorts a reason to cover today," said Orient Futures derivatives director Andy Du. "But underlying sentiment is still bearish, given the fragile state of the global economy, and we are not taking our eyes off developments in the euro zone," said Du, signaling that gains may be capped by worries over the troubled bloc. China's PMI data helped three-month copper on the London Metal Exchange jump 1.3 percent to $7,494 per tonne, before giving up some gains to trade at $7,435.50 by 0728 GMT. The contract had dipped to the lowest level since June 28 on Monday after news that Spain might need to resort to a full sovereign bailout. The most active November copper contract on the Shanghai Futures Exchange gained 0.2 percent to close at 54,500 yuan ($8,500) per tonne recovering from a three-week low of 54,170 yuan earlier in the session. Spain's economy sank deeper into recession in the second quarter, its central bank said on Monday, as a funding crisis in its regions pushed the country closer to a full bailout and with Spanish bond yields at a euro-era high above 7.5 percent. Even Europe's strongest economies may not be immune to the fallout from the region's debt crisis as Moody's Investors Service on Monday changed its outlook for Germany, the Netherlands and Luxembourg to negative from stable. In Italy, the euro zone's third-largest economy which is seen as the next weakest link after Spain, media reported that ten cities faced problems managing their finances, underlying growing concern about the sustainability of the country's local finances. Investors will likely trawl through factory activity and other data out of the euro zone due later in the session for more hints on how the single-currency region is faring. U.S. PMI and retail data for July is also due to be released on Tuesday. "The next important data to scour for trading cues are the various PMI data out of Europe and the U.S. retail numbers tonight. Should they turn out worse than expected, today's rally could easily fade," a Shanghai-based trader said. Market players are also waiting to see if property subsidies given by the government of China's eastern city of Nanjing to first-home buyers to will be the first of a wave of similar measures in second-tier cities. Many investors believe that relaxing the central government's current tough restrictions on the property sector would boost the economy and demand for industrial metals. "It's hard to tell if Nanjing's move is a positive for the base metals market yet, since the central government may clamp down on this later. We need more time to see how it turns out," said CIFCO Futures analyst Zhou Jie.

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