METALS-Zinc, copper gain on short-covering amid optimism on China

* Zinc challenging 25-day moving average
(Adds technical comments on copper, updates prices) By Eric Onstad LONDON, Aug 7 (Reuters) - Base metals rose on Tuesday on short-covering amid optimism top consumer China will prop up its economy with stimulus measures 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 up 1.3 percent to $2,601 a tonne by 1400 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 0.9 percent to $6,185 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.
* COPPER TECHNICALS: "While the price of copper remains below the $6,378 level on a daily chart closing basis, we will expect the 200-week moving average at $5,788.96 to be reached," Commerzbank technical analyst Axel Rudolph said in a note.
* ALUMINIUM STOCKS: LME aluminium increased 0.6 percent to trade at $2,054.50 a tonne. LME on-warrant inventories - those not earmarked for delivery - fell to the lowest level since September 2007, LME data showed on Tuesday.
* NICKEL: LME nickel climbed 1.2 percent to $13,850 per tonne, 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, its biggest drop in a week.
* PRICES: Lead rose 0.9 percent to $2,133 a tonne and tin added 0.9 percent firmer at $19,695