METALS-London copper drifts lower as China GDP growth cools
* China GDP growth eases to 7.7 pct in 4Q; could cool further in 2014
* U.S markets closed on Monday for public holiday
* Coming Up: Germany producer prices at 0700 GMT
(Adds detail; updates prices)
SYDNEY, Jan 20 (Reuters) - London copper edged lower on Monday in holiday-thinned trade as China reported slowing economic growth for the fourth quarter of last year, although prospects of tighter supplies than previously expected helped to contain losses.
China's annual growth rate eased to 7.7 percent in the fourth quarter as investment and demand flagged, and analysts say growth could cool further in 2014 as Beijing focuses on rebalancing the economy and other major reforms.
China is the biggest user of most industrial metals, accounting for around 40 percent of refined copper demand.
"We expect copper to do better than a lot of people expect this year," said analyst Matt Fusarelli of AME Group in Sydney, pointing to a potentially smaller pool of supplies than has been forecast.
AME sees Chinese copper demand growth at 3.5 percent this year and global demand growth at 4 percent, fed in part by a revival in demand from the United States and Europe. Prices are expected to average $7,300 in the first quarter.
Three-month copper on the London Metal Exchange edged down 0.2 percent to $7,325 a tonne at 0706 GMT from the previous session.
Copper prices closed a tad firmer on Friday, but have failed to cement gains this year, trading down 1.8 percent from a seven-month top of $7,460 a tonne hit on January 2.
The most-traded April copper contract on the Shanghai Futures Exchange climbed 0.2 percent to 51,800 yuan ($8,600) a tonne.
Reflecting a shortfall of metal in physical markets, cash copper has traded at a premium against benchmark prices since December and traded as high as $33 on Friday against the three-month contract, not far from 20-month peaks. <CMCU0-3>
The copper market may show a smaller surplus than many expect this year, if ample stockpiles of mine supply fail to translate into refined metal given some Chinese producers are expecting their production volumes to stay flat this year, Fusarelli added.
Supporting metals, U.S. industrial output rose at its fastest clip in 3-1/2 years in the fourth quarter as factory activity closed out the year on a strong note, a sign of the economy's brightening prospects.
U.S markets are closed for holiday on Monday.
Still, there was evidence that investors had become less optimistic on copper's prospects. Hedge funds and money managers cut their net longs in copper by 9,365 to 25,664 lots for a second consecutive week of decline, data from the Commodity Futures Trading Commission showed on Friday.
In other metals, LME nickel, last week's biggest gainer with an advance of around 6 percent after a ban on Indonesian ore exports came into effect earlier this month, slipped by 1.6 percent to 14,460 a tonne.
Capacity closures are on horizon for aluminium.
Global mining group BHP Billiton said on Friday it had started talks with employees at its Bayside aluminium smelter in South Africa about possibly closing the operation, a move that could cost 450 jobs.
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 = 6.0502 Chinese yuan)
(Reporting by Melanie Burton; Editing by Ed Davies and Tom Hogue)