METALS-Copper drifts on profit-taking as China policy uncertainty weighs

* China's monthly copper production jumps 10.8 pct in Feb LME-ShFe arbitrage buying supports LME prices - traders

* Coming Up; U.S. NFIB business optimism index at 1130 GMT

(Adds analyst, trader comment, updates prices) SINGAPORE, March 12 (Reuters) - London copper drifted on Tuesday, as investors took profits after a record close on Wall Street, tempering risk appetite, while Chinese interest was muted as parliamentary meetings near their end this week. The economic outlook in major industrialised economies is improving, with the United States and Japan leading the way, the OECD said on Monday, adding that activity in the euro zone was also picking up. This helped to drive a record close on Wall Street overnight, feeding into improved appetite for risk on Tuesday. But as Europe opened, buoyant sentiment began to fade, with investors consolidating their trading positions. Uncertainty over China's urbanisation policies continues to hang over copper prices. Looser monetary policy has yet to translate into commodities demand in the world's top consumer, in part due to uncertainties over its leadership transition and the spending power of local government, said Henry Liu, head of commodity research at Mirae Asset Securities in Hong Kong. "The whole driver for commodity demand comes from the local government (but) local government are sitting on a huge debt burden," he said. "This uncertainty over the transition, and local government spending power has slowed down ... spending. We just need a little bit more patience. The downside is limited - but the upside could be slow and unspectacular," he added. Liu sees copper prices trading in the range of $8,300 to $8,500 in the second quarter. Three-month copper on the London Metal Exchange slipped 0.19 percent to $7,740 a tonne by 0724 GMT, reversing a small gain from the previous session. Copper prices dipped to their second lowest this year, at $7,667 a tonne on Monday. Prices have shed almost seven percent from the year's highs hit in early February to log losses of 2 percent for the year. The most-traded June copper contract on the Shanghai Futures Exchange fell by 0.60 percent to close at 56,340 yuan ($9,100) a tonne. A narrowing price gap between domestic and global benchmarks also encouraged Chinese traders to buy the international contract in recent days although nearby trends are muddy, and in the Asian day, volumes are trailing off, traders said. The differential between Shanghai and London prices, taking into account import duties, has narrowed to 85 yuan ($13.67) from around 1,200 yuan in December.

CHINA COPPER OUTPUT JUMPS China's refined copper production grew 10.8 on the year to 483,000 tonnes in February. Aluminium output grew 11 pct to 1.73 million tonnes. China has been growing domestic production to reduce its reliance on international markets. Although its demand for metal has been blunted by record output, it still needs to source more than 2 million tonnes of copper this year. Codelco, the world's top copper producer, said last week it was slowly scaling back exposure to China as the country becomes more self-sufficient in meeting its copper needs through domestic production. PRICES Base metals prices at 0724 GMT

Metal Last Change Pct Move YTD pct chgLME Cu 7740.00 -15.00 -0.19 -2.38SHFE CU FUT JUN3 56340 -340 -0.60 -2.32HG COPPER MAY3 350.85 -0.85 -0.24 -3.94LME Alum 1960.25 8.75 +0.45 -5.35SHFE AL FUT JUN3 14815 -110 -0.74 -3.45LME Zinc 1968.00 7.50 +0.38 -4.63SHFE ZN FUT JUN3 15160 -385 -2.48 -2.48LME Nickel 16784.00 -91.00 -0.54 -2.16LME Lead 2203.25 7.25 +0.33 -5.84SHFE PB FUT 14720.00 -45.00 -0.30 -3.48LME Tin 23706.00 6.00 +0.03 1.31LME/Shanghai arb^ -85

Shanghai and COMEX contracts show most active months

($1=6.2181 Chinese yuan)

(Reporting by Melanie Burton; Editing by Clarence Fernandez)