Shanghai copper limit up after 8 pct London surge

By Nick Trevethan

SINGAPORE (Reuters) - Copper prices in London pulled back from an 8 percent surge on Friday and Shanghai futures closed at their upside limit as investors watched for data on U.S. non-farm payrolls that may show a bigger fall than expected.

Traders said the surge, which developed in very brisk futures trading, was probably the result of speculative activity following positive U.S. employment data overnight.

But markets are still braced for a big drop in Friday's non-farm payrolls for December, which could surpass expectations of a 500,000 decline, even though the number of U.S. workers filing new claims for unemployment benefits fell unexpectedly by 24,000 last week, data showed on Thursday.

"Speculative buying, maybe some short covering after the U.S. data, is probably behind the rally," a metals broker in Hong Kong said.

"But people are selling into the strength and I think we will hold around this $3,400 level in Asia, before selling down again in Europe."

Benchmark third month Shanghai copper rose by its 5 percent limit from Thursday's settlement to 27,280 yuan, while three-month London Metal Exchange copper gained 8 percent to peak at $3,449.75 in electronic dealing.

But China's physical buyers refused to follow and LME prices were back at $3,320 by 0802 GMT, though still up 3.8 percent on the day.

"Industrial raw materials are at very low levels and it doesn't take much to trigger reactionary buying," said Barclays Capital analyst Yingxi Yu.