METALS-Weaker dollar propels copper, zinc, nickel to highs

* U.S. data points to steady recovery * But copper stocks still rising, up 84 percent since July (Updates with closing prices) By Pratima Desai and Humeyra Pamuk LONDON, Dec 16 (Reuters) - Industrial metals rallied on Wednesday with copper rising to its highest in a week on a weaker dollar and as investors bet on improved metals demand next year. Zinc rallied over 4 percent to its highest since March 2008, while nickel hit a five-week high. Aluminium climbed towards its 14-month high struck earlier this week, despite a hefty rise in aluminium inventories. Benchmark copper on the London Metal Exchange hit $7,067 a tonne, the highest since Dec. 8. The metal used in power and construction ended the day at $7,039 a tonne compared with $6,895 at the close on Tuesday. "We're seeing a rally across the metals space on the back of weakening in the dollar," said Dan Smith an analyst at Standard Chartered ( SCBEF.PK - news - people ). "Most of the recent data -- from Europe, China -- is pointing to a recovery, although it will be choppy." After a series of relatively strong data, new U.S. home construction rose less than expected last month, while consumer prices increased marginally, suggesting little urgency for the Federal Reserve to raise interest rates sooner as the economy steadily recovers. The euro extended gains against the U.S. dollar, making industrial metals cheaper for non-U.S. currency holders. A clue to the future direction of the U.S. currency may come from a statement by the Federal Reserve at the end of a policy meeting later on Wednesday about the health of the U.S. economy. Smith said investor inflows betting on the global recovery next year and therefore stronger metals demand was another factor boosting the metal prices. The copper price has more than doubled since the start of the year, driven by restocking by China, the world's top consumer of the metal, a weaker dollar and signs the global economy is recovering. But stocks of copper in London Metal Exchange warehouses have surged 84 percent to above 473,000 tonnes since the middle of July when Chinese buying petered out. Analysts say better than expected economic numbers from the United States in recent weeks have fostered the idea that industrial metals were no longer solely reliant on China, the world's largest consumer of copper. "Economic data from the U.S. over the past month or so has given the market some confidence that we are going to see a recovery in OECD demand in the first half of next year," said Gayle Berry, analyst at Barclays ( BCS - news - people ) Capital. LEAST PREFERRED Traders are also watching stocks of aluminium which had another hefty inflow on Wednesday, taking the total to 4.625 million tonnes, a whisker from the record high of 4.629 million tonnes hit in September. However, they expect financing deals, which have tied up about 70 percent of LME stocks, to keep the market tight. Cancelled warrants -- material no longer available to the market -- at above 200,000 tonnes will also help prices. Aluminium was at $2,276 a tonne from $2,233 on Tuesday and stainless steel ingredient nickel closed at a five-week high of $17,500 a tonne from Tuesday's $16,900. Analysts saw nickel's gains limited due to historically high inventories. "Nickel remains our least preferred base metal, burdened with excess stocks," said RBS Global Banking & Markets in a note. "Nickel has (285,000 tonnes per annum) of idled capacity, plus a parade of new and expanded mines. Simply too much supply." Battery material lead closed at $2,410 a tonne from $2,360, zinc at $2,434 from $2,335, after hitting a high of $2,442 a tonne and tin was at $15,500 from $15,325 on Tuesday. Metal Prices at 1712 GMT Metal Last Change Percent Move End 2008 Ytd Percent move COMEX Cu 317.90 5.80 +1.86 139.50 127.89 LME Alum 2272.00 39.00 +1.75 1535.00 48.01 LME Cu 7020.00 125.00 +1.81 3060.00 129.41 LME Lead 2400.00 40.00 +1.69 999.00 140.24 LME Nickel 17350.00 450.00 +2.66 11700.00 48.29 LME Tin 15475.00 150.00 +0.98 10700.00 44.63 LME Zinc 2430.00 95.00 +4.07 1208.00 101.16 SHFE Alu 16445.00 -15.00 -0.09 11540.00 42.50 SHFE Cu* 55320.00 210.00 +0.38 23840.00 132.05 SHFE Zin 18700.00 95.00 +0.51 10120.00 84.78 ** 1st contract month for COMEX copper * 3rd contract month for SHFE AL, CU and ZN SHFE ZN began trading on 26/3/07 (Editing by Keiron Henderson and Sue Thomas)