METALS-Copper rises to 1-1/2 week high, demand worries cap gains
(Updates prices, adds comment, detail; previous SINGAPORE)
* China's official PMI slips to 50.1 in June
* Speculators boost copper shorts in week to June 25
* Coming up: U.S. ISM for June at 1400 GMT
LONDON, July 1 (Reuters) - Copper rose to a 1-1/2 week high on Monday, rebounding from falls last week, but the market remained on guard by concerns about the outlook for demand as data showed growth in China's manufacturing sector contracted in June.
Benchmark copper on the London Metal Exchange rose to $6,890 a tonne at 0926 GMT, up 2.1 percent from a close of $6,750 on Friday. It earlier hit an intraday high of $6,895 a tonne, its highest level since June 20.
Copper fell by 7.6 percent in June, its biggest monthly drop since May 2012, on worries about growth prospects in China and expectations of a roll-back of stimulus measures by the U.S. Federal Reserve. It had dropped to near three-year low of $6,602 last week.
"We are on the verge of a short covering rally. The potential is for (a move up to) $7,200 or even $7,400," T-Commodity consultant, Gianclaudio Torlizzi, said.
"Fundamental wise, the outlook is murky as the credit boom era is over but (the) condition is not as bad as the market thinks. Credit tensions could ease in July so the price should discount this."
The metal was also boosted by a rise in the euro against the dollar. A weak dollar makes commodities priced in the U.S. unit cheaper for holders of other currencies.
Yet analysts were cautious about tepid second-quarter growth in the world's top metals consumer. China's official purchasing managers' index (PMI) slipped to 50.1 in June from 50.8 in May. A private sector report also showed factory activity reached its lowest in nine months.
China accounts for some 40 percent of global refined demand.
"I expect copper demand to weaken over the next several months," said Chunlan Li, a Beijing-based analyst with consultancy CRU.
She pointed to a slowdown after the seasonally strongest second quarter, and lower monetary supply in China in the second half, as the two main factors likely to crimp demand.
"Copper tube demand started decreasing from mid to late June and we have also seen some impact on the wire market," she added.
China's key short-term lending rate on Monday fell to its lowest level since the peak of a cash crunch last month, while stocks showed signs of stabilisation as traders shifted focus back to the economy.
The latest report by the Commodity Futures Trading Commission (CFTC) showed hedge funds and money managers boosted short positions in Comex copper by 3,581 contracts to 32,599, the most since early April.
In industry news, the London Metal Exchange said it had launched a three-month consultation on proposed changes to metals warehousing rules, aimed at reducing long queues that end-users face in getting material.
(Additional reporting by Melanie Burton in Singapore, editing by Jeff Coelho)