METALS-LME copper strikes 3-1/2-month top as global outlook brightens

* LME, ShFE copper volumes hit YTD high on Weds as investors turn bullish

* China factory, U.S. jobs data due Friday may give more support

* Coming Up: U.S. weekly jobless claims ; 1330 GMT

(Updates prices) SINGAPORE, Jan 31 (Reuters) - London copper rallied to a three-and-a-half-month peak on Thursday as a revival in U.S. consumer spending and a recovery in Europe's banks added to evidence of strengthening global economic growth. Speculators have returned to the copper market this week as confidence grows, given European banks' pledge to pay back crisis-era debt sooner than expected, a pickup in European consumer morale and spending growth in the United States.

An encouraging sign in China's purchasing manufacturing figures or the U.S. January jobs report, both due on Friday, could further fan risk appetite and boost metals, traders said. However, upside momentum may be hard to sustain before mid-February, with Lunar New Year looming in top consumer China. Three-month copper on the London Metal Exchange traded at $8,288 a tonne by 0806 GMT, up 0.75 percent, and its loftiest since Oct. 5. It rose as high as 8,291.25. "We are still quite confident about a Chinese copper demand recovery in the first half, and we have seen evidence of pent-up demand so the downside risk is limited," said Henry Liu, head of commodity research at Mirae Asset Securities in Hong Kong. "But exceeding $8,500 this year might be a challenge, because domestic inventories are quite high," he said. The most-traded May copper contract on the Shanghai Futures Exchange rallied 0.79 percent to finish at 59,690 yuan ($9,600) a tonne. It earlier hit 59,740 yuan a tonne, its highest since Oct. 9. European stock futures signalled losses at the open on Thursday taking a little off the shine of risky assets. Optimism about global growth, however, supported sentiment as the Federal Reserve kept its stimulus policy, while the euro steadied on signs the region was stabilising from the debt crisis. The U.S. economy unexpectedly contracted in the fourth quarter, but analysts said there was no reason for panic as consumer spending and business investment picked up. Also reflecting improving economic conditions around the world, Japan's December factory output rose at the fastest pace in a year-and-a-half and firms expect further gains.

Data on Friday is expected to show China's factory activity in January probably expanded at its fastest in nine months.

Hiring by U.S. employers is likely to have held steady in January, pointing to modest growth in the economy despite worries that budget battles in Washington could derail the recovery.

NEW MONEY London and ShFE copper volumes both rallied on Wednesday to their highest this year. This, taken along with the price rise, reflects new speculative money flowing into the market. LME copper volumes in Thursday trade were more than double average levels by 0800 GMT at more than 7,000 lots. Supply, still rising, continues to be an overhang for the market. Bonded stocks in China stood at about 900,000 to 1 million tonnes in the beginning of this year, three times more than the start of 2012, traders estimated this month.

Japan's JX Holdings plans to start copper cathode production from Chile's Caserones copper mine by the end of February.

PRICES

Base metals prices at 0806 GMT

Metal Last Change Pct Move YTD pct chg LME Cu 8288.00 62.00 +0.75 4.53 SHFE CU FUT MAY3 59690 470 +0.79 3.48 HG COPPER MAR3 377.15 2.15 +0.57 3.26 LME Alum 2118.00 14.00 +0.67 2.27 SHFE AL FUT APR3 15250 50 +0.33 -0.62 LME Zinc 2168.00 13.00 +0.60 5.06 SHFE ZN FUT MAY3 16150 605 +3.89 3.89 LME Nickel 18490.00 115.00 +0.63 7.78 LME Lead 2461.00 22.00 +0.90 5.17 SHFE PB FUT 15545.00 55.00 +0.36 1.93 LME Tin 25025.00 125.00 +0.50 6.94 LME/Shanghai arb^ 853

Shanghai and COMEX contracts show most active months ($1 = 6.2204 Chinese yuan)

(Editing by Tom Hogue and Muralikumar Anantharaman)