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LONDON (Reuters) - Copper rose on Monday, reversing earlier losses, as the euro rebounded and the dollar fell but more evidence of shrinking factory activity in China and renewed worries over public debt problems in Spain capped gains.
But in contrast to Europe and Asia, manufacturing in the United States grew, whetting investor appetite for riskier assets at the expense of the safe-have dollar, which fell.
This lifted precious and base metals, which tend to benefit from a weak dollar because it makes them attractive investments for holders of other currencies.
Benchmark three-month copper on the London Metal Exchange closed at $8,299.50 from $8,205 at the close on Friday. In Shanghai, the futures exchange is closed this week for a national holiday.
"It's unlikely to be anything specific to the fundamentals of base metals," BNP Paribas strategist Stephen Briggs said of copper's sudden rise. "I think it's more likely to be the dollar weakness."
In China, the world's largest consumer of copper, the economy offered more evidence of a seventh straight quarter of slowing growth, with an official survey of factory managers continuing to show contraction for a second successive month.
This followed a private sector China purchasing managers index (PMI) survey published on Saturday which pointed to a month in which a slide in the rate of economic growth was halted but not reversed in September.
Expectations of lower demand from China have led Codelco, the world's No.1 copper producer, to seek to reduce 2013 physical copper premiums to Asian buyers by about $5, while its European rate will likely be held or trimmed by a smaller amount, a source linked to the company said.
Credit Suisse analyst Tom Kendall said Beijing was unlikely to cut rates until the Communist Party congress later this year. Policy moves in China are critical for the copper's demand prospects.
Beijing approved about $150 billion worth of infrastructure projects last month and has kept money markets liquid, but has refrained from cutting interest rates or the amount of reserves banks must hold since July.
In the euro zone manufacturing put in its worst performance in the three months to September since the 2008 financial crisis, a business survey showed, pointing to a new recession.
In Europe, uncertainty about when Spain would seek a bailout still weighed.
While an audit of Spain's banks failed to throw up any surprises on Friday, investors are awaiting the outcome of Moody's rating agency's latest review of Spain's sovereign rating.
Europe's fourth-largest economy may be downgraded to junk status, piling pressure on it to seek an international bailout soon.
A slew of central bank policy meetings is due this week, as is U.S. non-farm payrolls data, potentially deterring investors from making big bets.
"On Friday, U.S. non-farm payrolls are due. This time, the release will be watched even more closely than usual as the Fed has made its quantitative easing program dependent on labor market developments. The data can thus provide guidance on how much easing one can expect," Credit Suisse said in a note.
Tin closed at $21,850 a metric tonne from $21,805, zinc at $2,109 from $2,096 and lead at $2,292 from $2,280.
Aluminum closed at $2,126 a tonne from $2,113, and nickel at $18,730 from $18,475.
Additional reporting by Susan Thomas; editing by William Hardy