LONDON (Reuters) - Copper hit a one-week low on Monday as a rally driven by infrastructure plans in China and policy easing by the European Central Bank and the U.S. Federal Reserve ran out of steam, and as the euro sank on renewed uncertainty over Spain.
The euro fell versus the dollar as investors fretted over when Spain will seek external aid, a condition for the ECB to start buying Spanish bonds. Also weighing was a weaker-than-expected German Ifo business climate reading. <EUR/>
A weak euro makes dollar-priced metals costly for European and other non-U.S. investors.
Copper was also weighed by weak demand from top consumer China ahead of a week-long national holiday, and as Chinese manufacturers were still waiting to see orders from Beijing's infrastructure expansion plans.
Benchmark three-month copper on the London Metal Exchange edged down 0.86 percent to $8,210 a tonne by 0950 GMT, having earlier hit its lowest in more than a week at $8,182 a tonne.
Copper, used in power and construction, hit a 4-1/2 month high last week of $8,422 a tonne.
"People are in a wait and see mode. I think markets don't appreciate what the impact can be. Most of these (central bank) measures are unlimited in nature, they take time to flow through. We see prices pretty well supported through to the year-end," Macquarie analyst Ryan Belshaw said.
Daily LME data showed copper stocks rose 475 tonnes to 219,950 tonnes, adding to last week's 2,775 tonne jump, while Shanghai inventories jumped by 10,428 tonnes.
Still, the global refined copper market was facing a deepening production deficit this year.
In its latest monthly bulletin, the International Copper Study Group (ICSG) said the market stood in a 473,000-tonne deficit in the first half of this year, compared with a deficit of 131,000 tonnes in the first six months of 2011.
"The deficit in the same period a year earlier was 'only' 131 thousand tons. A sharp 7.3 percent year-on-year increase in apparent demand is to blame for the growth in the deficit," said Commerzbank in a note.
"In the medium to long term, we believe the (copper) price has further potential."
Mirroring this view, bullish bets on U.S. commodities held by hedge funds and other big speculators had risen by $30 billion since the end of July as they bought into oil, metals and crop markets, anticipating higher prices from stimulus measures, trade data showed.
SQUEEZE ON SPREADS
In other metals traded, aluminium fell 1.18 percent to $2,090, while tin fell 2 percent to $20,130 a tonne.
Most of the tightness seen last week on nearby spreads has dissipated since the September contract expired, though both markets remain tight overall, with record stock levels in aluminium doing little to relieve the situation.
The "tom/next" spread, representing the cost to roll over an expiring contract to the following day, in aluminium was down to a $6.50 backwardation from as high as $40 last week. In tin it fell to $1 from $25 last week.
In other metals, zinc used in galvanizing fell 1.04 percent to $2,095 a tonne, stainless steel ingredient nickel fell 0.96 percent to $18,000 and battery material lead fell 1.33 percent to $2,257.50.
Daily data showed LME lead stocks continued their decline, receding to 281,250 tonnes, down more than 10 percent since late June.
(Reporting by Maytaal Angel; editing by Jason Neely)