* Euro zone debt, political situation fragile * SHFE copper moves into backwardation * Coming up: U.S. durable goods; 1230 GMT By Silvia Antonioli LONDON, April 25 (Reuters) - Copper steadied on Wednesday on a weaker dollar and soft demand from top consumer China as investors awaited the outcome of a Federal Reserve meeting, which could give more clues on the prospects for further monetary easing in the U.S. Benchmark copper on the London Metal Exchange was at $8,175.50 per tonne by 0926 GMT, 0.5 percent up from a last bid of $8,150 a tonne the previous session. The metal, used in power and construction, gained about 11 percent in the first quarter this year, boosted by optimism about an economic recovery in the U.S. and an improvement of the delicate debt situation in the euro zone. It has since lost almost 4 percent this month under the weight of large Asian inventories and worries over weaker demand from China, which consumed about 40 percent of the global supply last year. Investors are now focusing on the outcome of a two-day Federal Reserve meeting, which began on Tuesday. The meeting will likely show the central bank is slightly more upbeat on the economy but in little hurry to raise borrowing costs. "The trading volumes are low across all metals today; people want to see what happens with the Fed," said Credit Suisse analyst Ivan Szpakowski. "The consensus is that some members are shifting towards a tightening. I don't think there will be any changes in terms of quantitative easing and interest rates but any kind of surprise could shake the market." Europe is also in focus as Italy prepares for another bond auction on Friday, after its borrowing costs rose on Tuesday as worries about politics in the Netherlands and France weighed on confidence. Supporting copper prices, the dollar fell to its lowest in three weeks versus a basket of currencies as a rise in appetite for riskier assets encouraged cautious selling of the low-yielding U.S. currency. A weaker U.S. currency makes dollar-denominated commodities such as industrial metals cheaper for holders of other units. SHFE BACKWARDATION Uncertainty over demand from China, however, was keeping metals prices in check. "I think the (Chinese) demand level is still pretty low but the trend is somewhat of an improvement. Although it is not a huge increase it is going in the right direction," Szpakowski said. Supporting this view, the Chinese Ministry of Industry and Information Technology said China's industrial output growth is showing positive signs of acceleration in the second quarter of the year versus the first quarter. The Shanghai Futures Exchange (SHFE) copper futures curve moved into a backwardation -- a discount for three-month over cash material -- this week . This generally suggests reduced supply availability or increased demand in the near term. "The SHFE market here seems a bit improvement. The demand is picking up a bit. However the SHFE backwardation is due mainly to the price drop," said a Shanghai-based trader. Some market participants, however, say the backwardation is not caused by higher demand but is a reflection of an artificial supply squeeze due to some large players holding dominant positions. In other metals, aluminium was at $2,084 from $2,085, while zinc , used to galvanize steel was at $2,001.25 from $2,002 Tuesday's close and battery material lead was at $2,083.75 from $2,072. Tin was at $21,705 from $21,675 and nickel was at $17,520 from $17,410. Metal Prices at 0928 GMT Comex copper in cents/lb, LME prices in $/T and SHFE prices in yuan/T Metal Last Change Pct Move End 2011 Ytd Pct move COMEX Cu 369.60 2.35 +0.64 344.75 7.21 LME Alum 2084.25 -0.75 -0.04 2020.00 3.18 LME Cu 8177.00 132.00 +1.64 7600.00 7.59 LME Lead 2081.75 9.75 +0.47 2034.00 2.35 LME Nickel 17511.00 101.00 +0.58 18650.00 -6.11 LME Tin 21705.00 30.00 +0.14 19200.00 13.05 LME Zinc 2001.50 -0.50 -0.02 1845.00 8.48 SHFE Alu 16145.00 0.00 +0.00 15845.00 1.89 SHFE Cu* 57590.00 -10.00 -0.02 55360.00 4.03 SHFE Zin 15500.00 20.00 +0.13 14795.00 4.77 ** Benchmark month for COMEX copper * 3rd contract month for SHFE AL, CU and ZN SHFE ZN began trading on 26/3/07

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