* Dollar weakens further, boosts London copper * S&P's threatens to downgrade U.S. credit rating * Bernanke retracts QE3 hint * U.S. Industrial prod/Capacity use, June; 1315 GMT (Updates prices, adds quotes and details) By Carrie Ho SHANGHAI, July 15 (Reuters) - London copper edged higher on Friday as the dollar weakened after Standard and Poor's warned it could cut the U.S. credit rating if no deal was reached on raising the government's debt ceiling and hopes for restocking by China supported the market. Three-month copper on the London Metal Exchange edged up 0.3 percent to $9,662.75 a tonne by 0421 GMT. The U.S. dollar fell in early Asian trade on Friday after S&P's warning on U.S. credit downgrade. "For copper's longer term price direction, we still have to look to Chinese consumption, which is steady. There will be restocking, given the robust drawdowns from inventories," said Dongzheng Futures trader Du Xiao Hua. But the most-active September copper contract on the Shanghai Futures Exchange edged down 0.4 percent to 71,860 yuan per tonne. "Although LME and ShFE copper are moving in different directions, their movements are very small. I wouldn't say there is a disconnect between the two contracts," Du noted. "What's stopping ShFE copper prices from surging higher right now is the fact that prices are too high while credit is still tight in China. But downstream demand is good with end users reporting strong orders on their books," Du said. On the macroeconomic front, various news weighed on sentiment. Ratings agency Standard & Poor's has warned it could cut the triple-A rating of the U.S. if a deal on raising the government's debt ceiling is not reached soon. Federal Reserve Chairman Ben Bernanke earlier raised hopes of the U.S. central bank embarking on a third round of economic stimulus, but in testimony to the senate on Thursday he said the central bank was not yet ready to take action. The U.S. Treasury has warned that it will run out of money to pay the country's bills after Aug. 2 if the $14.3 trillion borrowing limit is not raised. Failure to seal a deal by then could cause turmoil in global financial markets and plunge the U.S. into another recession. And as politicians struggled to reach a deal on deficit cuts, Bernanke warned that overzealous cuts to government spending in the short term could derail a shaky recovery. Policymakers and bankers are examining radical proposals to rescue Greece that include a sharp cut in its debt burden, ways to prop up banks and a new emphasis on boosting Greek growth, official and banking sources say. Italy's austerity budget passed its first parliamentary hurdle on Thursday but the opposition says Prime Minister Silvio Berlusconi's government is in a shambles and should resign after it is finally approved. "Things are not pretty on the macroeconomic front today, but problems with in the U.S. economy and the euro zone are not new," Du said. "These lingering problems have no negative or positive resolutions yet, that's why they're not offering very clear price direction. The possibility of QE3 wasn't clear in the first place, so now that it's taken off the table, it doesn't hurt that much," he added. The world economy should expand steadily this year and next thanks mainly to prospering emerging powers, a Reuters poll showed, but fiscal troubles lurking in Europe and potentially the United States risk blowing this view apart. Base metals prices at 0421 GMT Metal Last Change Pct Move YTD pct chg LME Cu 9662.75 32.75 +0.34 0.65 SHFE CU FUT SEP1 71860 -260 -0.36 0.01 LME Alum 2510.50 3.50 +0.14 1.64 SHFE AL FUT SEP1 17545 155 +0.89 4.19 HG COPPER SEP1 439.35 -1.90 +0.31 -1.04 LME Zinc 2370.00 20.00 +0.85 -3.42 SHFE ZN FUT SEP1 18225 -80 -0.44 -6.42 LME Nickel 24100.00 -110.00 -0.45 -2.63 LME Lead 2685.00 20.00 +0.75 5.29 SHFE PB FUT 17480 -75 -0.43 -4.74 LME Tin 27500.00 75.00 +0.27 2.23 LME/Shanghai arb 1192 Shanghai and COMEX contracts show most active months ^ LME 3-m copper in yuan, including 17 pct VAT, minus SHFE third month Shanghai lead launched on March 24 (Reporting by Carrie Ho; Editing by Ed Lane)

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