BUY OR SELL-Copper collapse: sign of a double-dip or good buy?

NEW YORK, June 7 (Reuters) - Down more than 20 percent in a span of about three months, the price of copper is on track for its biggest extended loss since the height of the global financial crisis in late 2008.

The metal, often viewed as a bellwether for the global economy due to its use in everything from electrical wiring to plumbing, crashed two lines of technical defense at $2.90 per lb and $2.85 per lb in New York futures trade on Friday HGc2.

The bearish momentum carried through to the start of the new trading week on Monday, pressuring prices down through the $2.80 level -- a level last seen in October 2009.

The selling spread to overseas markets as well on Monday, dragging the London copper price CMCU3 down to its lowest level since mid-October 2009, at $6,074 per tonne.

Both markets are now entrenched in their longest bearish stretch since August through December 2008 -- the depth of the strongest financial crisis since the Great Depression. (Graphic here)

Analysts said the latest catalyst behind the market's extended collapse was the disappointing monthly employment data in the United States on Friday. The worrisome figures added to an already uncertain global recovery picture, highlighted by debt contagion fears in Europe and concerns that Chinese growth restraints could crimp one of the copper market's main demand outlets.

China is the world's largest consumer of industrial metals, accounting for more than 30 percent of global copper demand, estimated to be around 19 million tonnes in 2010. But questions about the sustainability of its rate of consumption this year have been biting at the bulls' resolve.

Chinese policy-makers are trimming stimulus this year and already have instituted a number of measures to reign in speculation in its red-hot property market. Analysts fear these steps will dampen sales and construction of new homes, a major demand component for the metal, analysts said.

That demand uncertainty would likely keep prices in a downward trajectory over the short term, as fears of a double-dip recession mounted.

Others agreed with that bearish price outlook, but looked for greater stabilization as market fundamentals begin to reemerge and oversold technical conditions create better buying opportunities.

BEARISH CASE: double-dip

"There is a double-dip sort of feel out there, especially after the jobs number this morning," Zachary Oxman, managing director with TrendMax Futures in Encinitas, California, said Friday. "It's clear, despite the first half adjustments and census adjustments, that we're really in a worse situation than people think."

On Friday, the U.S. Labor Department said nonfarm payrolls in May rose by 431,000, far below a consensus estimate for 513,000 new jobs.

Although payrolls last month grew at their fastest pace in 10 years, buoyed by temporary hiring for the decennial U.S. census, private hirings slowed sharply as businesses opted to increase employees' hours rather than take on new workers.

"The economy is just not recovering at the strength at which everybody is thinking," Oxman added. "It's recovering at much slower pace, and the market is trying to re-price that."

Bob Haberkorn, senior market strategist at Lind-Waldock, agreed, pointing to growing weakness in global equity markets.

"I think you're still in a sell (mode), based off of what global equity markets are doing," he said. "I think we are getting ready for a double-dip (recession).

"Copper and China go hand-and-hand, and with a lot of talk of a housing bubble there, it's a weight on copper."

Chinese purchases helped to drive copper up 140 percent in 2009.

"I am looking to short copper, if it does get back to the $3.00 level," Haberkorn said.

BULLISH CASE: Chinese purchase power

Bulls argue that the overly pessimistic tone in the market right now is over-shadowing a firm underlying fundamental backdrop, which should reassert itself again after the panic selling subsides.

"Given the level copper's fallen off, if you're a consumer, this is a good time to buy because the drivers are still the same," said David Wilson, analyst at Societe Generale in London.

"China is likely to continue importing a lot of copper this year. This year (so far) they imported only 200,000 tonnes less than last year -- when prices were half current levels -- so they're still buying strongly, which indicates strong demand," he said.

Chinese imports of refined copper fell 8.1 percent in May, after a 52.9 percent rise in the previous month, due to Beijing's moves to tighten bank lending and reduce arrivals of contracted shipments. [ID:nSGE64K0BW]

"Prices are a bit of a bargain. The falloff is nothing to do with the underlying copper market but to do with nervousness over Europe, and we would say misplaced nervousness over Chinese tightening," Wilson said.

Michael K. Smith, president of T & K Futures and Options in Port St. Lucie, Florida, owed his expected market recovery to an overly bearish technical picture, which he believed would begin to repair itself closer to the $2.50 per lb level.

"I think we are going to see the $2.50 level ... it will happen over the next few weeks, but I think things will stabilize," he said. "Markets typically overdo the tops and the bottoms." (Additional reporting by Maytaal Angel in London; Editing by Walter Bagley)