METALS-London copper holds above $7,200, China demand supports
* LME copper slips for second week in three
* China physical trade dries up ahead of Oct. 1-7 holiday
* Coming up: Euro zone economic sentiment at 0900 GMT
SINGAPORE, Sept 27 (Reuters) - London copper hovered above $7,200 a tonne on Friday, underpinned by steady Chinese demand, although worries over U.S. fiscal policy clouded the outlook for investors.
While down slightly for the week, copper was on course to mark its third straight monthly advance, paring losses that dropped the metal to a three-year low of $6,602 a tonne in late June. Prices are still down more than 8 percent this year.
"We are in a moderate upward trend. That could bring us to $7,500 as the economy accelerates into the fourth quarter," said analyst Dominic Schnider at UBS Wealth Management in Singapore.
Schnider said gains could peak in the fourth quarter, although a holiday in China could weaken near-term demand.
China, which accounts for 40 percent of global refined copper demand, takes its national holiday over Oct. 1-7.
China's recent economic data reinforced the International Monetary Fund's forecast that the world's second-largest economy will avoid a second-half slowdown and grow 7.75 percent this year, a fund official said on Thursday.
Three-month copper on the London Metal Exchange stood at $7,254 a tonne by 0717 GMT versus the prior session's $7,251. It was down 0.3 percent for the week so far, its second fall in three weeks.
The most-traded December copper contract on the Shanghai Futures Exchange rose 0.6 percent to close at 52,350 yuan ($8,600) a tonne. It earlier climbed to 52,570 yuan, its highest since Sept. 3.
"Spot premiums are a little higher because of a lack of supply as most merchants who are willing to sell sold out their inventory yesterday," said one trader based in Shanghai.
"There is no physical liquidity today as everyone has probably done their business and is ready for the holiday."
Still, concerns over U.S. fiscal policy kept investors on edge.
U.S. House of Representatives Republicans on Thursday refused to give in to President Barack Obama's demand for straightforward bills to run the government beyond Sept. 30 and to increase borrowing authority to avoid a historic default.
Contracts to buy previously owned U.S. homes fell for the third straight month in August but fewer Americans filed new claims for jobless benefits last week, giving conflicting signals on the health of the economy.
On the supply side, a 48-hour nationwide strike in Peru is unlikely to affect mineral output from the country, although many union mining workers picketed in Lima on Thursday to protest changes to a pension programme, union and company officials said.
Three month LME copper
Most active ShFE copper
Three month LME aluminium
Most active ShFE aluminium
Three month LME zinc
Most active ShFE zinc
Three month LME lead
Most active ShFE lead
Three month LME nickel
Three month LME tin ($1 = 6.1214 Chinese yuan)
(Reporting by Melanie Burton; Additional reporting by Manolo Serapio Jr; Editing by Joseph Radford and Tom Hogue)