* Sharper appetite for risk lifts cyclical assets
* LME/ShFE arb: http://bit.ly/2wZSAEz
* GRAPHIC-2018 asset returns: http://tmsnrt.rs/2jvdmXl (Updates throughout, adds LONDON dateline)
LONDON, April 5 (Reuters) - Copper rose 1 percent on Thursday as fading concerns over the prospect of a trade war between China and the United States sparked a bounce in cyclical assets such as stocks and industrial metals.
Stock markets rebounded from the previous session's two-month low after the United States indicated it was willing to negotiate a resolution to the trade spat between the world's two biggest economies.
Investors had sought nominally safer assets earlier this week after a U.S. proposal for tariffs on $50 billion in Chinese goods prompted Beijing to respond that it would target key American imports in retaliation.
"The positive (factor) today is that there are possible talks on (averting) a trade war, and a possible de-escalation," ABN Amro analyst Casper Burgering said.
"Copper is a very cyclical metal, and it tends to react very swiftly to macroeconomic events."
Copper remains undervalued given its underlying fundamentals, he added. "From the data I've received there is still no real shortage in the copper market, but given the projections for this year and next, it appears to be heading for a deficit," he said.
* COPPER: London Metal Exchange copper was up 1.1 percent at $6,799 a tonne at 0930 GMT, after falling 1.1 percent in the previous session. Prices are rebounding from a three-month low of $6,532 a tonne hit on March 23.
* FINANCIAL MARKETS: World stocks rose as investors dipped back into riskier assets after signs that Sino-U.S. trade tensions are easing, while the recovery in equities helped lift the dollar index to a two-week high.
* SHFE: The Shanghai Futures Exchange was closed on Thursday and Friday for China's national Tomb Sweeping Day holiday. "Since Chinese markets will be closed for the rest of the week because of the Qingming festival, impetus for the metals markets will come only from the U.S.," Commerzbank said in a note.
* ALUMINIUM: Shanghai Futures Exchange (ShFE) aluminium stocks fell for the first time in more than nine months, giving the market faint hopes of a drawdown on record inventories of the metal in China, the world's biggest aluminium producer and consumer.
* Aluminium was up 0.3 percent at $1,997 a tonne.
* ZINC STOCKS: Headline zinc inventories in LME warehouses fell 2,175 tonnes to 207,325 tonnes, exchange data showed, but on-warrant stocks - those not earmarked for delivery and therefore available to the market - surged 16 percent to 166,650 tonnes, their highest since mid March.
* ZINC PRICES: LME zinc was 0.4 percent lower at $3,245 a tonne.
* OTHER METALS: LME lead was 0.5 percent higher at $2,384.50 a tonne, while nickel was up 1.8 percent at $13,380 a tonne after sliding 2.4 percent on Wednesday. Tin was up 0.4 percent at $20,980 a tonne.
(Additional reporting by Melanie Burton in Melbourne, editing by David Evans)