Copper, oil targeted by wary investors for 2013

* Investors watch for more signs of economic recovery

* Industrial metals, oil linked to global economy

* Sentiment cools towards gold from disappointed investors

LONDON, Dec 21 (Reuters) - Investors, stung by losses in commodity investments this year and last, are warily preparing to put money into oil and industrial metals in 2013 if recovery takes hold in the global economy and especially in top raw materials consumer China.

Some fund managers have already upped allocations to copper, closely correlated with world industrial output, while others are waiting for more signs that demand is gearing up and macro-economic roadblocks are being removed.

Sentiment is cooling towards gold, which has disappointed some investors seeking a safe haven and inflation hedge. It has failed to get much traction from either central bank money printing or potential crises such as the fiscal cliff of tax hikes and spending cuts which may be triggered in January without a deal on U.S. budget deficit reduction measures.

"Next year, if the global economy improves and somehow we get a fiscal cliff deal and Europe also solves itself, then commodities could be off to the races. But that's a big if," said Tyler Stevens, of the U.S.-based Commonfund, which manages $24 billion of assets.

Most commodity hedge funds have lost money for a second straight year in 2012 as markets were buffeted by weak global growth and macro issues. Investments in commodity index products have also struggled to make money.

The Thomson Reuters-Jefferies CRB index, which tracks 19 futures markets, has shed 3.6 percent so far this year after a loss of 8.3 percent in 2011.

"That's been part of the problem. You have these macro events bigger than the individual fundamental supply stories you can trade," said Stevens.

CHINA KEY

Some investors have already upgraded commodity weightings as economic data improves from China, which accounts for 40 percent of copper demand, but they are treading carefully.

Koen Straetmans at ING Investment Management in the Netherlands increased his rating of commodities overall to neutral from underweight and pegged industrial metals as overweight in September.

"We do expect in the first quarter of 2013 to see a further build up in Chinese economic recovery," said Straetmans, senior strategist at the group, which has 316 billion euros under management worldwide.

"Industrial metals have outperformed on a relative basis since mid November and we expect that to continue in the early part of next year."

The index of six industrial metals on the London Metal Exchange has outperformed the CRB index by 6 percent since mid November.

Copper has been named "Dr. Copper" by some to reflect its reputation as an indicator of economic health due to its widespread applications in the global economy from home construction to power generation to transport.

Investors must be selective among industrial metals, however, since the aluminium, zinc and nickel markets are all due to be swamped by excess output and surpluses.

Many investors are tilting towards putting money in crude oil, also closely aligned with the global economy, but could also get support from renewed tension between the West and Iran over its nuclear programme.

Barclays advises a position in Brent crude using options to lock in modest downside protection and greater upside exposure.

"This kind of positioning should also benefit if geopolitics moves back onto oil traders' radars and boosts prices, as we expect it to in early 2013," an outlook report said.

GOLD LOSES LUSTRE

Gold has consistently been at the top of many investors buy lists during 12 straight years of gains, but the love affair seems to be cooling.

Investors have worried that gold is no longer blazing its own path as a quasi currency, but is being swept along with other risk assets, tumbling on negative news instead of rallying as a safe haven.

This is the first year in a decade that gold has failed to set a new yearly peak. Spot gold has gained 4.9 percent so far this year, the weakest annual rise since 2001.

"For more and more managers, gold is probably no longer a 'no brainer' trade, so some of them are starting to wonder if they could start implementing some short trades," said Gabriel Garcin, a portfolio manager at Europanel Research & Alternative Asset Management in Paris, which invests in European hedge funds and CTAs.

Straetmans at ING is neutral on gold, wary of a build up in speculative positions following the announcement of further quantitative easing by centrals banks earlier this year.

"It is rather vulnerable to all kinds of changes in sentiment," he said.

Investors are keeping a close eye on grain markets after the worst U.S. drought in more than 50 years prompted a sharp rally earlier this year and left stocks at low levels.

Morgan Stanley pegs agriculture as a top commodity sector for next year. "With inventories, particularly in corn and soybeans, still precariously tight, more demand rationing is needed through the first half of 2013," a note said.

(Editing by Keiron Henderson)