* China reported to be boosting investment in railways
* Planned Escondida strike postponed for mediation
* Zinc challenging 25-day moving average (Adds analyst comment, updates prices, changes dateline from SINGAPORE)
LONDON, Aug 7 (Reuters) - Base metals rose on Tuesday on short-covering due to optimism that top metals consumer China will prop up its economy with stimulus and that the country's currency is stabilising.
Shares in Chinese infrastructure firms received a boost from expectations of increased spending on public works projects.
China Railway was reported in domestic media as saying China would boost its fixed asset investment in railways to 800 billion yuan ($117 billion) in 2018, an increase of 9.3 percent over its original plan.
"The Chinese government continuing to stimulate the economy is a good sign, but more importantly, the fact that the yuan is not making new lows versus the dollar seems to be pushing some short-covering on the metals," said Gianclaudio Torlizzi, partner at consultancy T-Commodity in Milan.
"Last week, when the Chinese government tried to stop the yuan depreciating, was the trigger which supported the bottoming of the metals. I think August may be a bullish month for Chinese-related assets like metals."
Three-month zinc on the London Metal Exchange was the top performer, rising 1.6 percent to $2,609 a tonne by 1000 GMT after falling 2.4 percent on Monday.
Zinc has shed nearly a fifth since mid-June, largely due to fears about trade conflicts weighing on global growth and metals demand.
Torlizzi said he had gone long on lead and zinc. The latter was challenging its 25-day moving average at $2,598, a positive technical sign used by computer-driven investors, he added.
* ZINC SHORTS: Zinc had the second-largest speculative short position on the LME, accounting for 21 percent of open interest at Friday's close, according to estimates by Marex Spectron.
* COPPER ESCONDIDA: LME copper gained 0.5 percent to $6,164 a tonne, with gains tempered after BHP formally requested government mediation at its Escondida copper mine in Chile, the world's largest, prompting the union to postpone the start of a planned strike.
* ALUMINIUM STOCKS: LME aluminium increased 0.7 percent to $2,058 a tonne. LME on-warrant inventories - those not earmarked for delivery - fell to the lowest level since September 2007, LME data showed on Tuesday. <MALSTX-TOTAL>
* NICKEL: LME nickel rose 1 percent to $13,825 per tonne and Shanghai nickel climbed 2.1 percent, supported by a rally in Chinese steel prices to their strongest since April 2012 amid production curbs.
* DOLLAR: Metals were supported by a weaker dollar index , which slipped 0.3 percent.
(Reporting by Eric Onstad; Editing by Dale Hudson)