(Reuters) - Copper rallied on Monday after Spain secured a $125 billion bailout package for its banks and economic data from China was not as bad as expected, though doubts over whether bailouts can stem Europe's debt crisis kept gains in check.
Euro zone finance ministers agreed to lend Spain up to 100 billion euros ($125 billion) for its bank rescue fund in a bid to reassure investors and prevent a bank run.
Three-month copper on the London Metal Exchange rose nearly 3 percent to a session high of $7,506.75 a tonne, rebounding from a near six-month low of $7,233.25 on Friday.
It traded up 1.51 percent in official midday rings at $7,405 a tonne from $7,295 at the close on Friday.
The relief may be short-lived, however. Greek elections on Sunday could put Athens on a path to leaving the euro, which would then renew market pressure on Spain and Italy, which is also facing scrutiny over its public finances.
"The Spanish bailout takes short-term risk out of the market, but it doesn't do much to address the underlying issues and we now have to wait for the Greek elections," said Credit Suisse analyst Tom Kendall.
Investors also took comfort from data showing China's May copper imports climbed nearly 12 percent from April, an indication that demand could be stronger in the near term following the recent price slump.
The data was a mixed bag, however, because it also showed China's inflation, industrial output and retail sales all flagged in May for a second straight month, which helped explain China's surprise rate cut last week.
"The Chinese data over the weekend weren't as bad as some were fearing, but it's a market across commodities where the rallies we are seeing are more short-covering than improving fundamentals," Kendall said.
AN OPENING TO IMPORT
A physical trader in Shanghai said an improved LME-ShFE arbitrage in May gave long-term contract buyers and those using copper for financing an opening to import.
"Copper import losses fell to just around $140 a tonne at some point in May. The level was not ideal, but better than the $500-700 losses in the previous months," the trader said.
Data also showed production of refined copper in China fell 1.4 percent from a month earlier to a three-month low in May, with some smelters taking the chance to carry out maintenance as consumption remained sluggish.
Though output is expected to pick up in June, China's increased copper imports, its better-than-forecast exports and its easier monetary policy should reduce worries about slow demand in the world's top copper consumer.
Elsewhere, LME nickel bucked the broad-based rally, trading down 0.29 percent at $16,900 a tonne in midday rings, after also going against the trend on Friday. It rose 2 percent while all other metals fell on Friday after falling below $16,000 on Wednesday, its cheapest level since December 2009.
Looking forward, analysts said weak global demand for stainless steel will keep pressuring nickel prices. But in the short term, they see some slight support from dwindling Chinese port stock levels due to lower import appetite and recent supply disruptions of nickel pig iron from Indonesia.
"I am bearish on nickel over the longer term, but there can be a temporary lift to prices as soon as there are signs that Chinese port stocks are falling. However, we are likely to see the effects of this supply-side boost only in a few weeks' time," Shanghai Metals Market analyst Amy Chen said.
Tin traded up at $19,720 a tonne in rings from $19,700, zinc traded up at $1,885.50 from $1,868, lead traded up at $1,906 from $1,902 and aluminum traded down slightly at $1,982 from $1,985.
(Reporting by Maytaal Angel; editing by Jane Baird)
