UPDATE 2-Mining shares recover in Europe after Asian tumble

(Updates with European prices, analyst comment)

By Eric Onstad and Tom Miles

LONDON/HONG KONG Aug 5 (Reuters) - Resource stocks tumbled in Asia on Tuesday on weak commodity prices and more fears about a global slowdown, but many mining stocks recovered in Europe as investors bet on renewed Chinese demand.

"The selling bears the hallmark of a `macro-type hedge fund' raid on the market," said analyst John Meyer at investment bank Fairfax in London.

"But the fact that there's such a lot of volume, especially in the midcap mining space, is good evidence of investors waiting for this sort of pullback to come in and do some buying."

The world's biggest mining group BHP Billiton (BHP.AX) crumbled 6.6 percent in Australia and initially slid over 3 percent in London (BLT.L) before paring losses to 0.2 percent by 1055 GMT.

No. 2 Rio Tinto (RIO.AX), which also shed more than 6 percent in Australia, rose 0.4 percent in London (RIO.L) while Anglo American (AAL.L) gained 1.8 percent and Xstrata (XTA.L) added 1.7 percent ahead of half-year results on Wednesday.

The UK mining index .FTNMX1770 rose 0.7 percent after losing 5.2 percent on Monday, bringing its total decline to around 30 percent since mid-May.

The high-flying sector was hit by selling from investors who had previously poured cash into commodities and related companies as a hedge against U.S. dollar weakness and rising inflation, analysts and fund managers said.

"Global demand for commodities is coming down, so it's not surprising that there will be a cyclical correction from what were very high levels driven by the four years of robust back-to-back world GDP (gross domestic product) growth," said Geoff Lewis, head of investment services at JF Asset Management in Hong Kong. "For those people who don't have any exposure, this would be a good entry point."

On the London market, investors snapped up stock in Chilean copper producer Antofagasta (ANTO.L), pushing up shares 2.8 percent, and Latin American silver and gold producer Hochschild (HOCM.L), which rallied 4.4 percent.

CHINA BOOM

Investors have relied for months on China's boom supporting prices for oil, copper, aluminium and steel, even as the U.S. economy has suffered a housing crisis that has taken it to the brink of recession. Richer households in China and India have also contributed to a sharp rise in food prices.

But copper MCU3 hovering around a six-month low on Tuesday and other industrial metal prices declined as rising inventories pointed to lower demand, while U.S. soybean futures SQ8 hit their lowest in three months, with ideal crop weather boosting supply just as Chinese buying slowed down ahead of the Olympics in Beijing. [ID:nSP151799]

Data last Friday showed China's manufacturing sector contracted in July for the first time since an official survey began in 2005 [ID:nPEK202380], although analysts said the slowdown was due at least in part to the shutdown of polluting industries ahead of the Olympics, which start on Friday.

"China's economic growth has shown a drastic deterioration lately, which is much faster and worse than many people's expectations," Citigroup Asia strategist Lan Xue said in a note to clients.

Top Chinese aluminium producer Chalco (2600.HK) fell 5.4 percent and coal giant Shenhua (1088.HK) slid 7 percent, while specialist coking coal miner Hidili (1393.HK) lost a tenth of its value.

Analyst Michael Rawlinson at Liberum Capital in London said Chinese demand was expected to rebound after the games were finished.

"With Chinese demand and output numbers massively distorted by the preparations for and hosting of the Olympics, we do not expect the strongly telegraphed resurgence in demand to come through in the markets until September at the earliest. But come it will in our opinion."

U.S. crude oil CLc1 fell to $118 a barrel on Tuesday, a three-month low, as investors focused on rising OPEC supply and declining demand in the United States and Europe.

Pressured by weak U.S. demand, oil prices have tumbled 20 percent since hitting a record $147.27 a barrel on July 11. But oil is still up about 25 percent so far this year.

In London, Tullow Oil (TLW.L) surrendered 5.9 percent, Cairn Energy (CNE.L) shed 2.4 percent while majors BP (BP.L) and Royal Dutch Shell (RDSa.L) each lost around 1 percent.

The Reuters-Jefferies CRB index .CRB, which tracks a basket of 19 commodities, fell 3 percent on Monday, wiping out all the gains made since early May. (Additional reporting by Jeffrey Hodgson in Hong Kong, Geraldine Chua in Sydney; Editing by Ian Geoghegan and Erica Billingham)