* U.S. Senate announces compromise to raise debt ceiling
* Alcoa suspends output at part of Saudi smelter
* LME zinc stocks rise by a massive 73,575 tonnes
By Maytaal Angel and Freya Berry
LONDON, Oct 16 (Reuters) - Copper prices rose on Wednesday on signs U.S. politicians would agree a last-minute deal to prevent federal debt default.
U.S. Senate leaders announced a bipartisan compromise to raise the debt limit and reopen government although the deal still must be voted on by both the Senate and the House of Representatives.
Benchmark three-month copper on the London Metal Exchange was not traded in closing rings but was last bid up 0.3 percent at $7,260 per tonne.
"There's a bit of a yo-yo going on ahead of the final decision," said Nic Brown, head of commodities research at Natixis, as copper prices moved between positive and negative territory amid the political brinkmanship.
"A deal of any kind will be taken positively," Brown said.
Copper prices are tentatively recovering from three-week lows of $7,081 a tonne reached last week, although they remain down by more than 8 percent this year over concerns about a surplus.
The improved outlook on the U.S. situation helped the dollar climb to a three-week high against the yen, weighing on copper. LME benchmark metals are priced in dollars and become more expensive to holders of other currencies when the U.S. unit rises.
"To use the word confident is wrong, but the market genuinely doesn't think the politicians would be reckless enough to trigger a full-scale default," VTB Capital analyst Wiktor Bielski said.
Aluminium prices rose after Alcoa said that its smelter in Saudi Arabia, which is in its startup phase, has temporarily stopped production on one of two potlines.
Three month aluminium closed 0.4 percent higher at $1,856 a tonne.
Analysing investor responses to last week's annual metals industry week in London, Barclays noted a slight improvement in general sentiment but flagged that discretionary investors remain largely sidelined.
"Feedback from our meetings showed that investors are neutral-to-bearish on zinc and aluminium, neutral on copper, are becoming more constructive on nickel, and are bullish on lead and tin," it said.
Tin has been supported by a drop in shipments from top exporter Indonesia after new laws forced all trade through its domestic exchange, with BNP Paribas predicting the disruption would help propel tin to at least $25,000 a tonne in 2014.
Elsewhere, markets were looking ahead to Chinese gross domestic product and industrial production data on Friday. Chinese third-quarter year-on-year GDP growth is seen at 7.8 percent, up from 7.5 percent in the second quarter.
Zinc closed ring trading down 0.1 percent to $1,927.5 a tonne after the latest LME data showed a big 73,575 tonne increase in daily zinc stocks to 1.06 million tonnes, with most of the increase in the backlogged port of New Orleans.
Tin finished down 0.3 percent to $23,005, lead gained 1 percent end at $2,165 and nickel closed up 0.9 percent at $14,120.
Three month LME copper CMCU3
Most active ShFE copper SCFcv1
Three month LME aluminium CMAL3
Most active ShFE aluminium SAFcv1
Three month LME zinc CMZN3
Most active ShFE zinc SZNcv1
Three month LME lead CMPB3
Most active ShFE lead SPBcv1
Three month LME nickel CMNI3
Three month LME tin CMSN3