METALS-Copper climbs after Fed reassures on stimulus

* Large zinc short must pay or deliver into LME for March -LME data

* LME-ShFE price differential narrows, boosts volumes

* Coming up; euro zone business climate at 1000 GMT

(Adds detail, comment; updates prices) SINGAPORE, Feb 27 (Reuters) - London copper rose on Wednesday after the U.S. Federal Reserve reassured investors of its commitment to monetary stimulus, helping prices pull away from two-month lows hit the session before. Three-month copper on the London Metal Exchange had climbed 0.50 percent to $7,898 a tonne by 0318 GMT, adding to small gains from the previous session. Copper prices fell to the lowest since Dec 21 on Monday at $7,785, and are sitting in negative territory for the year. The most-traded June copper contract on the Shanghai Futures Exchange advanced 0.45 percent to 57,570 yuan ($9,200) a tonne. "Bernanke's comments helped to build sentiment," said Singapore-based analyst Dominic Schnider at UBS. The new leadership in top metals consumer China will take more stimulus steps as the second quarter unfolds, Schnider continued, helping to firm copper prices. That would outweigh any drag on the country's exports if parliamentary deadlock in Italy delays a eurozone recovery, he added. "For us, the sell-off is a buy." Fed Chairman Ben Bernanke strongly defended the U.S. central bank's monetary stimulus before Congress on Tuesday, easing financial market worries over a possible early retreat from bond purchases. Italy's stunned political parties searched for a way forward on Tuesday after an inconclusive election gave none of them a parliamentary majority and threatened prolonged instability and a renewal of the European financial crisis. Strengthening appetite for risk was reflected in a rebound in Asian shares on Wednesday, tracking U.S. stocks higher, while the yen held near one-month peaks. "We believe that base metals in general would remain vulnerable to selling ahead of the PMI manufacturing data (for China) out on Friday," Standard Bank said in a note. "Following the weak Flash PMI number for China, and in line with our view, there seems to be some nervousness in the market about the sustainability of base metal rallies in general." A narrowing price differential between London and Shanghai copper was helping to underpin turnover and LME copper's price rally, traders said.

ZINC SHORT Rising prices for cash zinc against contracts further out shows a large short position holder may have to pay to roll its position next month or deliver metal to the LME instead. "More attention should be given on the nearby spreads actually with the 04/03 to 20/03 bit getting even tighter," said London-based brokerage Triland in a note. The LME's futures banding report shows a single holder of more than 40 percent of outstanding short futures positions <0#LME-FBR>. This is most likely a hedge against large physical positions, with a single holder of zinc warrants, cash and tomorrow/next day futures positions on the LME <0#LME-WHL> <0#LME-WHT> <0#LME-WHC>. PRICES Base metals prices at 0319 GMT

Metal Last Change Pct Move YTD pct chg LME Cu 7898.00 39.50 +0.50 -0.39 SHFE CU FUT JUN3 57570 260 +0.45 -0.19 HG COPPER MAR3 356.90 0.25 +0.07 -2.29 LME Alum 2033.00 10.50 +0.52 -1.83 SHFE AL FUT JUN3 14935 30 +0.20 -2.67 LME Zinc 2117.00 19.00 +0.91 2.59 SHFE ZN FUT MAY3 15675 130 +0.84 0.84 LME Nickel 16803.00 158.00 +0.95 -2.05 LME Lead 2315.50 18.50 +0.81 -1.05 SHFE PB FUT 15170.00 35.00 +0.23 -0.52 LME Tin 23350.00 50.00 +0.21 -0.21 LME/Shanghai arb^ -5

($1 = 6.2295 Chinese yuan)

(Reporting by Melanie Burton; Editing by Joseph Radford)