Copper gains on China demand optimism

* Copper rebounds 10 pct since 3-yr lows hit in June

* Trading cautious ahead of next week's Chinese holiday

* Coming up: U.S consumer sentiment data 

Copper rose on Friday, supported by improving demand in China, although lingering concerns about the U.S. fiscal outlook kept investors cautious and capped further gains for the metal.

Benchmark copper on the London Metal Exchange was at $7,271.50 a tonne at 1019 GMT, up from a close of $7,251 a tonne on Thursday.

The metal used in power and construction was on course to mark its third straight monthly advance, rebounding 10 percent since hitting a three-year low in late June.

Year to date, prices are still 8 percent lower.

Strong seasonal demand in China is providing support to prices while uncertainty over the U.S. fiscal outlook is deterring companies from placing new orders and draining liquidity from the market.

China's recent economic data reinforced the International Monetary Fund's forecast that the world's second-largest economy will avoid a second-half slowdown and grow 7.75 percent this year, a fund official said on Thursday.

"There are plenty of reasons to be positive about copper," said Nic Brown, head of commodities research at Natixis.

"Economic numbers in China ...are heading in the right direction and comments from the authorities indicate that things are getting better for the Chinese economy."

Activity from China is expected to be muted next week due to a national holiday in the world's biggest consumer of refined copper.

"We are in a moderate upward trend. That could bring us to $7,500 as the economy accelerates into the fourth quarter," said analyst Dominic Schnider at UBS Wealth Management in Singapore.

Schnider said gains could peak in the fourth quarter, although the holiday in China could weaken near-term demand.

Reflecting concerns about U.S. fiscal policy, U.S. House of Representatives Republicans on Thursday refused to give in to President Barack Obama's demand for straightforward bills to run the government beyond Sept. 30 and to increase borrowing authority to avoid an historic default.

In industry news, a 48-hour nationwide strike in Peru is unlikely to affect output from the country, although many union mining workers picketed in Lima on Thursday to protest changes to a pension programme, union and company officials said.