* Judge allows Sterlite to restart smelter in a week
* Sterlite aims to begin production in about one week - statement
* Smelter restart to improve supply in India and Asia
NEW DELHI, May 31 (Reuters) - India's largest copper smelter is likely to restart within a week, after a court on Friday gave a conditional go-ahead, ending a two-month-long shutdown that has squeezed domestic supply and boosted imports.
The smelter run by Sterlite Industries, a unit of London-listed Vedanta, can resume operations overseen by a court-appointed panel, Justice Swatanter Kumar of a fast-track court, the National Green Tribunal, said.
"A balance has to be struck between environmental interests and sustainable economic development," the judge said, adding that the panel would determine if the smelter required additional anti-pollution equipment.
The court will issue a final order after July 10, he added, to follow Friday's interim order.
Sterlite's smelter is expected to resume production in about a week, a company statement said. Earlier, the head of its copper business P. Ramnath had suggested a restart in two weeks, with supply to customers commencing in another week.
The smelter, which uses imported concentrates, produces 30,000 tonnes of refined copper a month, or more than half of India's total production. Nearly half its output goes to China.
Its closure had made available to the market an extra 3,000 tonnes of copper concentrates each day.
"If the closure had been prolonged for some more time it would have led to a steep increase for premiums," said a physical trader based in Singapore, who has Indian clients. "Already we had started getting copper cathode enquiries."
Most of India's exports of copper go to China, the world's biggest consumer of the metal, which used around 9 million tonnes last year, well in excess of India's annual consumption of around 600,000 tonnes.
"The restart will ease the tight supply situation across Asia, but particularly in India, where the domestic market has been suffering because of a shortage in cathode," said another metals trader based in Singapore.
The shutdown of the Sterlite smelter helped drive up copper premiums, which rose in Shanghai to a high of $140 a tonne over cash London Metal Exchange copper, the trader added.
A long-arranged shutdown of Hindalco Industries Ltd's Birla smelter on May 7 also cut tonnage to the market. That smelter, which produces around 30,000 tonnes a month, will reopen early in June, the company has said.
India's cable makers faced a severe shortage of copper and potential manufacturing delays after the closure of the country's two biggest copper smelters.
Sterlite, whose parent Vedanta is controlled by billionaire Anil Agarwal, has been waiting for government clearances to double the capacity of its smelter to 800,000 tonnes a year.
Its smelter, in the coastal town of Tuticorin near the southern tip of India, was shut on March 30 after residents complained of emissions that led to breathing problems.
Environmental issues and other concerns, including land acquisition, have enmeshed several global companies' plans for big-ticket investments in India, ranging from South Korea's POSCO to units of Vedanta.
Sterlite's smelter has long been the target of protesters and politicians who call it a risk to local fisheries.
Several cases have been filed against the company since the plant started in 1996. In a different case, India's top court last month fined Sterlite about $18 million for breaking environmental laws at the smelter.