Power distribution problems after a devastating earthquake in Chile could cut copper output more than 25 percent in the world's top producer of the red metal, creating supply fears and lifting global copper prices.

The earthquake and ensuing tsunamis on Feb 27 killed hundreds of people, mangled roads and knocked down buildings in a pile of wreckage that could take years to rebuild.

The 8.8-magnitude tremor spared northern Chile, where most of the country's copper is mined. But mining operations halted briefly near the epicenter for top producer Codelco as well as for Anglo American and Antofagasta .

Another blackout on Sunday fueled fears of repeated disruptions at mines that produce some 1.5 million tones of copper per year or about 10 percent of global output.

Most mines in Chile have emergency power generators that help keep output at lower levels when energy falters. But repeated outages could damage equipment and trim output targets, experts say.

Shaky energy supplies could also slow recovery of two top oil refineries shut down after being damaged by the quake. Wood pulp output also is down sharply in one of the world's top producers of the raw material used to make paper.

Alongside a strong improving demand picture, these kinds of production problems definitely do add a bit of extra support, said Kevin Norrish, an analyst with Barclays Capital.

He said copper demand in United States and Europe could pick up soon as their economies rebound from recession.

U.S. copper futures closed at a two-week low on Monday, as a firmer dollar and increased concerns that top consumer China may further tighten monetary policy overshadowed supply fears in Chile.

Still, Juan Carlos Guajardo, head of the influential Santiago-based CESCO mining think tank, said the market could react quickly if outages continue in the mining powerhouse.

These are important mines and any news about outages will be watched very closely by the market, Guajardo said. It could be complicated if outages happen often, but it's too soon to say if that is the case.

QUICK RECOVERY?

Chilean energy officials have said it could take months to normalize the main power grid. They have asked Chileans to use less energy, warning of repeated outages in coming months.

President Sebastian Pinera said on Monday the main power grid will be unstable for the next seven days, but vowed to quickly fix the transformer that caused the blackout.

Analysts say center-right billionaire Pinera, who took office last week on pledges to rebuild the country, is in a good position to rapidly fix faulty power lines with the help of the private sector and the billions of dollars in copper savings he could use for reconstruction.

Chile is seen as the most developed Latin American country and best able to cope with this kind of disaster, but I think it's difficult for any country to regain full power supplies after this sort of event, said John Meyer, a mining analyst with Fairfax.

Meyer said he expects medium-size mines around Santiago to slow down for a period, because of the power hitches and logistic problems the earthquake may have caused, but he does not see big output disruptions in the medium term.

(Additional reporting by Fabian Cambero and Alonso Soto; Editing by David Gregorio)

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