* Aluminium hits two-year low at $1,905 on supply glut * U.S. recovery risks could steer Fed to launch stimulus * COMING UP: U.S. Federal Reserve rate decision By Harpreet Bhal and Melanie Burton LONDON, June 20 (Reuters) - Copper fell on Wednesday as concerns about spreading European sovereign debt troubles kept investors cautious, although hopes the Federal Reserve could offer more stimulus for the U.S. economy helped support the outlook for demand and limit falls in base metals. Three-month copper on the London Metal Exchange (LME) fell by 0.8 percent to $7,547 at 1438 GMT, down from Tuesday's close of $7,609 a tonne. The metal used in power and construction is down more than 10 percent so far this quarter and is trading around one percent lower for the year to date. Aluminium fell alongside energy prices to a new two-year low. Fears lingered that Spain's debt crisis could spiral out of control, with its soaring borrowing costs showing that a euro zone deal to lend its banks up to 100 billion euros ($126 billion) had not solved its problems or restored investor confidence. It also suggests more aid may be needed to fix its finances. "The markets are now really very short, but there is a reason for that. Sentiment has really deteriorated about the growth outlook and people now are more concerned about China than they were even a few months ago," analyst Gayle Berry of Barclays Capital said. "Risks are going to stay until there is some real action on sovereign debt. Some of the short covering we saw yesterday has eased off as well," she added. The U.S. Federal Reserve concludes a two-day policy meeting on Wednesday, and expectations are high that the central bank will extend its bond-buying programme dubbed "Operation Twist" to shore up the economy. The liquidity hit provided by previous doses of Fed stimulus has lifted riskier assets, and financial markets have become highly sensitive to expectations of further moves, with global equities and commodities tending to rise and the dollar coming under pressure when action is seen as increasingly likely. "Should the Fed announce more QE, indications are that gold, silver, Brent and aluminium are likely to move higher with the most certainty," Standard Bank said in a note. "We also note that metals where we may see some short- covering are likely to perform better in the very short term... Looking at LME open interest and price behavior, we believe that, like platinum, lead and nickel may see the most short-covering should commodities rally strongly." ALUMINIUM TROUGH Aluminium fell to its lowest since June 2010 at $1,905 a tonne, tracking copper and energy, and due to a glut of oversupply. Producers have kept smelters churning despite the tenuous outlook for global growth due to high demand for their products from financiers who are able to lock in small but low risk profit as set costs for storage and capital costs fall below the aluminium forward price curve. Daily average primary aluminium output in May dropped to 67,900 tonnes compared with a revised 68,100 in April and 69,900 in May 2011, provisional figures from the International Aluminium Institute (IAI) showed. "The IAI production data for May released today suggests that apparent demand for aluminium was strong in May," an analyst at a U.S. fund said. "Although demand is holding at decent levels, unless we get supply cuts and/or increased monetary stimulus soon, aluminium might be a victim of further price falls. CTAs (momentum sellers) are selling as they anticipate poor northern hemisphere summer demand," he added. Aluminium traded at $1,908.50 from $1,925.50. In other metals, zinc traded at $1,881.75 a tonne from Tuesday's close of $1,899 while nickel was at $17,012 from $17,095 a tonne. Tin changed hands at $19,240 from Tuesday's close of $19,530. Lead was $1,896.50 from Tuesday's close of $1,912.50. Metal Prices at 1450 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 340.85 -2.50 -0.73 344.75 -1.13 LME Alum 1907.75 -17.75 -0.92 2020.00 -5.56 LME Cu 7549.00 -60.00 -0.79 7600.00 -0.67 LME Lead 1896.50 -16.00 -0.84 2034.00 -6.76 LME Nickel 16974.00 -121.00 -0.71 18650.00 -8.99 LME Tin 19217.00 -313.00 -1.60 19200.00 0.09 LME Zinc 1880.00 -19.00 -1.00 1845.00 1.90 SHFE Alu 15755.00 105.00 +0.67 15845.00 -0.57 SHFE Cu* 55220.00 310.00 +0.56 55360.00 -0.25 SHFE Zin 14930.00 70.00 +0.47 14795.00 0.91 ** Benchmark month for COMEX copper * 3rd contract month for SHFE AL, CU and ZN

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