* Spot business remains slow on tighter credit -trader
* Alcoa to shut Sardinian ops, cut aluminium output by 150,000 T
* Coming up: U.S. durable goods orders July at 1230 GMT (Adds detail; updates prices)
By Melanie Burton
SYDNEY, Aug 26 (Reuters) - London copper climbed to a three-week high as the market reopened after a holiday weekend on Tuesday, with signs of weakening in Europe's economy fanning hopes for fresh stimulus.
In stronger language than he has used in the past, European Central Bank President Mario Draghi said on Friday that the ECB was prepared to respond with all its "available" tools should inflation drop further.
"The important thing is Draghi's about face. He said 'we're going to use fiscal stimulus to get this going' - and the markets like it," said Jonathan Barratt, chief investment officer at Ayers Alliance in Sydney.
"What we want to see is this rhetoric followed up with concrete action, and that would provide the confidence to conclude that the technical base we feel is in place for copper is of substance."
Three-month copper on the London Metal Exchange reached its highest since Aug. 5 at $7,108.75 a tonne before giving up the gains to trade flat at $7,070 a tonne by 0730 GMT. Prices notched up their biggest weekly gain last week in 11 months.
Burnishing the case for further stimulus, the euro zone's flat-lining economy took another hit on Monday when data showed German business sentiment sagging for the fourth month running, while a row over the lack of growth led the French government to resign.
The most-traded October copper contract on the Shanghai Futures Exchange traded at 50,610 yuan ($8,226) a tonne in overnight trade, having marked a seven-week top on Monday.
"Spot business is slow," said a trader in Singapore, adding that banks in general have been more reluctant to extend credit after a suspected metals financing fraud in Qingdao in May.
"It seems to have affected business a bit for everyone."
Elsewhere, the U.S. economy continued to gather steam. Sales of new U.S. single-family homes fell for a second straight month in July, but a surge in the stock of properties on the market and slower price gains should help stimulate demand in the months ahead.
Divided by mistrust and mutual recriminations, Russian and Ukrainian leaders will hold rare talks on Tuesday that offer only a slim hope of progress towards ending five months of separatist war in Ukraine.
Aluminium producer Alcoa Inc said on Monday it would permanently close its Portovesme smelter on the Italian island of Sardinia.
The closure of the plant, which has not operated since November 2012, will reduce Alcoa's global smelting capacity by 150,000 tonnes to 3.6 million tonnes per year.
In news, Chilean copper miner Antofagasta posted an 11.5 percent fall in first-half core profit on Tuesday, hit by higher production costs and lower copper prices.
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
1 US dollar = 6.1528 Chinese yuan Reporting by Melanie Burton; Editing by Joseph Radford and Prateek Chatterjee