METALS-Copper down on waning risk appetite, slow physical demand

* Stock markets cautious, dollar index up 0.15 percent

* China refined copper output extends fall from record in Feb

* Miner Antofagasta boosts dividend payout as profits rise

(Recasts, adds comments, previous SINGAPORE) LONDON, March 12 (Reuters) - Copper edged lower on Tuesday as stocks levelled off after hitting record highs, dampening risk appetite, while uncertainty over the outlook for physical demand from top consumer China also weighed on prices. European shares were flat in morning trade, though Antofagasta rose nearly 5 percent after the miner more than doubled its dividend payout. The euro struggled against a broadly firmer dollar, weighed down by political uncertainty in Italy and the contrast between a brightening U.S. economic outlook and faltering growth in the euro zone. A strong dollar makes commodities priced in the U.S. unit more expensive for holders of other currencies. Demand from China, which consumes 40 percent of global refined copper, has been slow to pick up since the end of the Lunar New Year holiday last month. "To sustain a macro-driven rally you need to see an actual improvement on the physical side, which we haven't seen yet ... we need to see premiums inching higher," said Andrey Kryuchenkov, an analyst at VTB Capital, noting that copper was trading in a very narrow range, with support around $7,700. Three-month copper on the London Metal Exchange reversed small gains from the previous session to slip 0.2 percent to $7,740.50 a tonne by 1028 GMT, from $7,755 on Monday. Looser monetary policy has yet to translate into commodities demand in China, 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. "We just need a little bit more patience. The downside is limited, but the upside could be slow and unspectacular," said Liu, who sees copper prices trading in the range of $8,300 to $8,500 in the second quarter. Copper prices dipped to $7,667 a tonne in intraday trade on Monday, their second lowest this year. Prices have shed almost seven percent from the year's highs hit in early February to log losses of 2 percent for the year. A narrowing price gap between domestic Chinese prices and global benchmarks also encouraged Chinese traders to buy the international contract in recent days, although nearby trends are muddy, 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 DROPS The latest figures showing lower copper output by China will help ease worries that the world's largest consumer and producer will import less refined copper for much of this year. Chinese copper output dropped for a second straight month in February from record highs touched in December as smelter operations slowed for the Lunar New Year break. Aluminium output, a market in which China is also the top consumer and producer, rose 15 percent to 3.51 million tonnes in the first two months. January output reached a record 1.78 million tonnes, the data showed.

In industry news, copper miner Antofagasta sought to brush off investor worries about its growth options with a better-than-expected 2012 payout and special dividend, as profits rose despite lower copper prices. In other metals traded, soldering metal tin fell to $23,675 from a close of $23,700 a tonne on Monday, while zinc, used in galvanizing, was at $1,965 from $1,960.50. Aluminium was at $1.951.25 a tonne from $1,951.50 on Monday. It is expected to edge up to $1,975 per tonne and then drop towards the Monday low of $1,935, according to Reuters market analyst Wang Tao. Stainless-steel ingredient nickel slipped to $16,825 a tonne from $16,875 on Monday. "The nickel price remains under pressure from severe over-supply as LME stocks continue to rise steadily," Macquarie said in a note. Latest figures showed nickel stocks on LME-registered warehouses fell by 144 tonnes to 161,316 tonnes, but remained close to three-year highs. Nickel had risen nearly 1 percent in the previous session after French metals group Eramet shut down a nickel mine in New Caledonia as a cyclone approached. The mine restarted early on Tuesday. Battery material lead was at $2,199 from Monday's close of $2,196. Metal Prices at 1111 GMT Comex copper in cents/lb, LME prices in $/T and SHFE prices in yuan/T

Metal Last Change Pct Move End 2012 Ytd Pct

move

COMEX Cu 349.40 -1.30 -0.37 365.25 -4.34 LME Alum 1952.75 1.25 +0.06 2073.00 -5.80 LME Cu 7750.50 -4.50 -0.06 7931.00 -2.28 LME Lead 2203.25 7.25 +0.33 2330.00 -5.44 LME Nickel 16852.00 -23.00 -0.14 17060.00 -1.22 LME Tin 23640.00 -60.00 -0.25 23400.00 1.03 LME Zinc 1969.25 8.75 +0.45 2080.00 -5.32 SHFE Alu 14750.00 -80.00 -0.54 15435.00 -4.44 SHFE Cu* 56370.00 -300.00 -0.53 57690.00 -2.29 SHFE Zin 15075.00 -80.00 -0.53 15625.00 -3.52

(Addition reporting by Melanie Burton in Singapore; editing by Jane Baird)