* U.S. Aug payrolls post smallest increase in 8 months
* Nickel hits highest since early July on supply worries
* Tsingshan plans nickel pig iron output from Jan (Recasts, adds details/closing prices)
By Harpreet Bhal and Maytaal Angel
LONDON, Sept 5 Copper edged up on Friday after lower-than-expected U.S. jobs data reassured investors that the Federal Reserve would not speed up plans to increase interest rates, though gains were capped by growing supplies.
The metal, demand for which is seen by some as a broad gauge of economic health, was also underpinned by speculation that the European Central Bank's move to cut interest rates would help spur an economic revival in Europe.
Benchmark copper on the London Metal Exchange (LME) ended up 0.65 percent at $6,975 a tonne, but closed the week down 0.2 percent - its fifth weekly fall in six weeks.
Data out earlier showed U.S. non-farm payrolls added 142,000 jobs last month, the smallest increase in eight months. Economists had expected payrolls to increase 225,000 in August.
The report doused market conjecture that the Fed might consider moving up plans for an interest rate increase at its next meeting in mid-September after a recent flurry of economic data pointed to a strengthening economy.
Also helping copper, the European Central Bank cut interest rates to a record low on Thursday and launched a new scheme to push money into the flagging euro zone economy, surprising markets.
"Copper demand has been lacklustre, and this was mainly due to the weak economic data out of Europe, China and Japan," Naeem Aslam, chief market analyst at Ava Trade, said.
"However, given the recent announcements by (ECB president Mario) Draghi, I am optimistic that this should stimulate demand for industrial metals such as copper."
Europe as a whole accounts for around 20 percent of the world's copper demand, the second-largest copper consuming region after China, which accounts for some 40 percent of copper demand.
Still, any prospects for demand have been overshadowed by mounting supply, especially after Indonesian producers resumed shipments that had been halted since January over a tax and regulatory dispute.
The copper market is expected to be in a 226,000 tonne surplus by the end of 2014, rising to 285,000 tonnes in 2015, a Reuters poll in July showed.
Nickel prices edged to their highest since early July at $19,580 a tonne on worries over worsening ore shortages after a Philippine senator this week proposed banning exports to add more value in country.
There was little clarity, however, over how likely the proposal was to pass or on any potential timescale.
Nickel later pared gains to end up 0.85 percent at $19,560 a tonne.
Indonesia enforced a similar policy in January to build up domestic processing at home, choking supply to China's stainless steel producers, which account for more than half of world output.
China's Tsingshan Group expects to start production at its Indonesian nickel pig iron smelter as soon as January, becoming the second plant to ramp up since new mineral processing laws came into force at the start of the year.
In other metals, LME aluminium closed down 0.57 percent at $2,093 per tonne, though it was still in sight of last week's top of $2,119.50, the highest since February last year.
Two Japanese aluminium buyers have agreed to pay a producer a record premium of $420 per tonne for metal to be shipped in the October-December quarter, two sources directly involved in the quarterly pricing talks said on Friday.
Zinc closed down 0.17 percent at $2,394 per tonne, lead closed down 0.94 percent at $2,204 a tonne while tin ended down 0.23 percent at $21,450 a tonne.
Three month LME copper
Most active ShFE copper
Three month LME aluminium
Most active ShFE aluminium
Three month LME zinc
Most active ShFE zinc
Three month LME lead
Most active ShFE lead
Three month LME nickel
Three month LME tin (Additional reporting by Melanie Burton in Sydney and Maytaal Angel in London; editing by Jane Baird and Keiron Henderson)