* China swings to trade deficit in February, exports tumble * China copper imports fall 30 pct in Feb vs Jan * Bonded Shanghai copper premiums drop $20/T from late Feb (Recasts, updates prices, adds details, changes dateline) By Maytaal Angel LONDON, March 10 (Reuters) - London copper hit an eight-month low on Monday and Shanghai contracts dropped by the 5 percent daily limit, fanned by fears over the unwinding of copper finance deals in China after its first domestic bond default last week. Adding to the downward pressure, China's exports unexpectedly tumbled in February, swinging the trade balance into deficit and adding to fears of a slowdown in the world's second-largest economy, even though the Lunar New Year holidays were blamed for the slide. A further hit came from China's imports of unwrought copper, which fell 30 percent in February from January due to weak Shanghai copper prices. Imports were still up 27 percent from last year's levels, however. "Clearly there's an unwind of positioning in the credit markets in China, and as a result of that, copper which was being held as collateral against that credit is no longer required," said Guy Wolf, global head of market analytics at Marex Spectron. Three-month copper on the London Metal Exchange dropped nearly 2 percent to $6,659 a tonne by 1058 GMT. It earlier slid as low as $6,608 a tonne, its weakest since June 25 and within a whisker of nearly three-year lows. The most-traded May copper contract on the Shanghai Futures Exchange fell 5 percent to 46,670 yuan ($7,600) a tonne, its lowest in more than four years. ALL EYES ON COPPER FINANCING China is the world's top user of copper, accounting for 40 percent of global demand. But much of its imports are used as collateral to raise funds, which are then loaned out in China's shadow banking sector. Worries that these financing deals could unravel have intensified since China recorded its first domestic bond default on Friday, when loss-making solar equipment producer Chaori Solar missed an interest payment. "The loan default by a small Chinese company shows that the not everything gets bailed out and that's enough to make people nervous. I haven't seen for 10 years that LME goes down and Shanghai goes down even further," Herwig Schmidt, head of sales at Triland, said. Reflecting ample supply in China, copper premiums in Shanghai bond have fallen by $20 to $140-$160 from late January, according to China price provider Shmet. (www.shmet.com/) Also Chinese short-term rates and the yuan fell on Monday following the surprisingly weak exports data, fuelling expectations Beijing is quietly easing monetary policy to buttress wobbly economic growth. Elsewhere, U.S. job growth accelerated sharply in February despite the icy weather that gripped much of the nation, easing fears of an abrupt economic slowdown and keeping the Federal Reserve on track to continue reducing its monetary stimulus. Hedge funds and money managers turned copper markets into a net short in the week to March 4, according to data from the Commodity Futures Trading Commission on Friday. Also curtailing risk appetite were worries about escalating tensions in Ukraine. Germany's Angela Merkel delivered a rebuke to President Vladimir Putin on Sunday, telling him that a planned Moscow-backed referendum on whether Crimea should join Russia was illegal and violated Ukraine's constitution.

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