* TSX down 31.21 pts, or 0.3 pct, at 12,528.64
* Touches February low of 12,424.75
* Greek debt talks help ease worries
* Sluggish Chinese demand weigh
By Jon Cook
TORONTO, Feb 7 (Reuters) - Toronto's main stock index pared losses after hitting a February low on Tuesday midday, after mining and energy issues rebounded on renewed optimism over a Greek debt deal, which helped offset worries about sluggish Chinese demand.
Greece's government is preparing a document with a list of painful reforms needed to clinch a new financing package, a government official said on Tuesday, moving Athens one step closer to a deal needed to avoid a debt default.
The news brightened the market mood somewhat, though skepticism remained.
"We've been hearing the same thing for the past two years. I don't believe in it until I see it," said Sid Mokhtari, a market technician at CIBC World Markets.
The energy and material sectors bounced back from earlier losses, but were still down on the session.
Canadian Natural Resources, was down 4 percent at C$38.68, and Teck Resources, was off 1.4 percent at C$41.90.
At 11:45 a.m. (1645 GMT), the Toronto Stock Exchange's S&P/TSX composite index was down 31.21 points, or 0.3 percent, at 12,528.64. Earlier it touched a low of 12,424.75, its weakest level since Jan. 31.
Prior to news of progress in the Greece negotiations, the market fell on fears that China's economy was slowing, reflected in rising copper stocks. Chinese trade data later this week is expected to show lower copper imports were down in January from December.
Investors also worried that China's central bank would keep interest rates on hold, which would likely not spur increased business lending in the world's second-largest economy.
On Tuesday, the Reserve Bank of Australia kept rates steady, surprising most investors who had wagered on a cut.
"Now it's highly expected from the Chinese to cut their rates. And what if they don't?" said Mokhtari. "That's the driving factor for the weakness in the cyclical aspect of the TSX."
Lower rates are viewed as being better for commodity markets as they help increase lending, which in turn boosts demand for resources that help fuel expanding economies.
In individual company news, shares of Nevsun Resources Ltd tumbled nearly 30 percent to C$4.50 after the miner said it expects gold production at its Bisha mine in Eritrea to nearly halve in 2012 due to a cut in its reserve estimate.