UPDATE 7-Copper bounces, but upside seen limited

* Fed liquidity injection helps boost confidence

* Hefty rise in LME stocks; copper stocks jump 9,600 tonnes

* China absent from copper market

LONDON, Oct 7 - Copper bounced on Tuesday along with equity markets, but economic fears, rising inventories and poor demand prospects are expected to cap prices.

Three-month copper on the London Metal Exchange ended at $5,625 a tonne versus $5,560 a tonne on Monday, when it hit a 20-month low of $5,465 a tonne.

European shares slipped after an earlier run higher on news the U.S. Federal Reserve had announced the creation of a special-purpose facility to begin buying commercial paper in yet another emergency move aimed at calming financial markets.

"There's just a massive liquidity injection globally, everybody is trying to pump money into the financial system to try to stabilise it," said Edward Meir, analyst at MF Global.

"Commodities are benefitting from that, but the backdrop looks pretty bleak."

Stocks of copper in LME registered warehouses rose by 9,600 tonnes to 208,350 tonnes -- their highest since February 2007, with between 80-90 percent of them held by one entity.

"Clearly, there are ongoing concerns about how deep and prolonged the downturn is going to be and concerns about the impact it's going to have on demand across the board," said Adam Rowley, analyst at Macquarie Bank.

Lack of demand in China, the world's largest consumer of copper, using about 25 percent of total global production, has also sapped confidence.

"China, returning from a week-long holiday yesterday, showed no inclination to pick up "cheap" LME copper," said UBS in a note. "If China is shunning copper at these prices, there is no signal for the shorts (bets on lower prices) to cover."

CONSUMPTION FALLING

Aluminium closed at $2,303 tonne from $2,255 on Monday when it hit $2,235, its lowest level since early 2006.

Stocks of the metal in LME warehouse total more than 1.38 million tonnes and are at their highest since February 2004.

"We continue to see weakness in U.S. consumption. European consumption is faltering rapidly and is expected to get worse," Barclays Capital said in a note.

"Worryingly Chinese consumption is also showing signs of slowing and we now believe it's increasingly unlikely that consumers will come back and restock through (the second half of 2008) after aggressive destocking in (the first half)."

China is the world's largest producer and consumer of aluminium used in transport, packaging and power.

Stainless steel raw material nickel closed at $14,200 from $14,300 on Monday.

Lead was unchanged at $1,630 per tonne tin unchanged at $16,200 and zinc at $1,550 from Monday's last bid at $1,549.

Looking ahead, metals markets are waiting for U.S. Federal Reserve Chairman Ben Bernanke to speak at 1715 GMT. Metal Prices at 1608 GMT Metal Last Change Percent Move End 2007 Ytd pct

move LME Cu 5600.00 40.00 +0.72 6670.00 -16.04 SHFE Cu* 48640.00 -2570.00 -5.02 56880.00 -14.49 LME Alum 2291.00 36.00 +1.60 2403.00 -4.66 SHFE Alu* 14470.00 -435.00 -2.92 18180.00 -20.41 COMEX Cu** 257.25 6.85 +2.74 303.05 -15.11 LME Zinc 1545.00 -55.00 -3.44 2370.00 -34.81 SHFE Zinc* 12845.00 -825.00 -6.04 18950.00 -32.22 LME Nick 14175.00 -125.00 -0.87 26350.00 -46.20 LME Lead 1635.00 -85.00 -4.94 2550.00 -35.88 LME Tin 16100.00 -635.00 -3.79 16400.00 -1.83 ** 1st contract month for COMEX copper * 3rd contact month for SHFE AL, CU and ZN SHFE ZN began trading on 26/3/07