LONDON, Jan 18 - Copper rallied on Monday after a move by China's central bank to support the yuan triggered a reversal of bets on lower prices but the mood was expected to stay bearish on worries about demand growth in the top consumer.

Benchmark copper on the London Metal Exchange was up 1.2 percent at $4,382 a tonne at 1118 GMT. The metal used in power and construction touched $4,318 on Friday, its lowest since May 2009.

China's central bank on Monday confirmed it was preparing to raise the reserve requirement ratio next week for yuan deposits placed in yuan clearing banks from zero to the normal level.

A weaker yuan means metals priced in dollars cost more and erode Chinese firms' purchasing power.

"The latest move is an effort to curb speculation and downward pressure on the yuan, so that is positive for copper as weaker yuan suggests demand for imported metal could fall," said Capital Economics analyst Caroline Bain.

"Any sustained rally will only be possible after the Lunar New Year and associated distortions to data, when a clearer picture will emerge on the state of Chinese physical demand."

China's Lunar New Year Holiday runs for a week from Feb. 8.

Traders expect volumes to start dwindling and more short position covering as the holiday approaches.

"There's been a fair amount of short covering on metals today, we need a bigger shake out before we can say the improvement is fundamental," a trader said.

Copper received some support from rising home prices in China in December.

But the market will be watching investment and industrial production data for December due on Tuesday for clues as to the potential strength of Chinese demand.

Also a problem for metals overall is high inventories, oversupply and mining companies' reluctance to cut output and balance the market.

"It will take some time for capex cuts, project cancellations and project closures to result in any significant dents in the excessive inventory piles," Citi said in a note.

Three-month aluminium was down 0.3 percent at $1,468 a tonne, zinc gained 0.9 percent to $1,490, lead rose 0.8 percent to $1,609, tin lost 0.2 pct to $13,270 and nickel added 1.9 percent to $8,555 a tonne.

Traders said news that Australia's Queensland Nickel had appointed voluntary administrators had raised hopes of more nickel output cuts.

Courtesy : Reuters