METALS-Copper, aluminium fall on dollar gains, China

MARKETS-METALS (UPDATE 6)

* Dollar hits six-month high versus the euro

* U.S. bank plans, Fed decision on the radar

* Nickel stocks hit record high

(Recasts, updates prices and comments)

By Pratima Desai

LONDON, Jan 27 (Reuters) - Industrial metals dropped to multi-week lows on Wednesday due to a stronger dollar, persistent worries over monetary tightening in China and uncertainty over U.S. plans to limit risk trading activity.

Copper hit a five-week low and aluminium fell to a seven-week low. Nickel hit its lowest in two weeks and zinc dropped to a two-month low as the dollar rose to a six-month high against the euro.

A stronger dollar makes commodities priced in dollars more expensive for holders of other currencies.

Benchmark copper fell to $7,172.50 a tonne, its lowest since Dec. 24. The metal used in power and construction ended the day at $7,230 a tonne, versus $7,395 on Tuesday.

"There are ongoing fears about further tightening in China, and the possible effect of that -- not only directly on demand but also on the scope for companies and investors to unwind some of their strategic stocks or positions," Charles Kernot, mining analyst at Evolution Securities said.

The latest trigger was news that China's largest bank, Industrial and Commercial Bank of China, said it had stopped rolling over some loans to slow credit growth.

But some analysts were still positive, betting that the measures would focus on the fiscal side and would not harm domestic consumption.

"Government-led infrastructure projects have always been a priority and China is only trying to sustain its booming growth to evade inflation," VTB Capital said in a note.

RED HERRING

Prices of industrial metals have also came under pressure from U.S. plans to rein in banks' proprietary trading.

Paul Volcker, a member of the Obama administration's economic team and a former chairman of the Federal Reserve, will testify on Feb. 2 to a U.S. Senate committee on the latest White House bank regulation proposals.

"This could be a red herring, we need to see more detail, but the market is trying to price it in already," a metals trader said, adding that a statement from the U.S. Federal Reserve was on the radar.

The Fed ends a two-day meeting on Wednesday, which is expected to yield little in terms of a policy shift, but investors will scrutinise the statement for clues to the future direction of monetary policy and the dollar.

Also in the spotlight are LME stocks, which with the exception of aluminium, rose for all metals on Tuesday.

A 5,025-tonne rise in copper stocks caused some consternation, but traders pointed to the rise in cancelled warrants -- material already earmarked for delivery -- up at 11,900 tonnes from 3,125 tonnes on Jan. 4.

"Cancelled warrants are in Busan, Singapore and Korea ... the metal is going to China," the trader said.

But for zinc the rise in stocks -- 2,275 tonnes to 496,200 tonnes -- reinforces the results of a Reuters survey published on Tuesday, which showed expectations are for a market surplus this year of 209,500 tonnes from 12,000 in July.

Three-month zinc closed at $2,236 a tonne from $2,318.50 on Tuesday, tin was at $17,850 from $17,975 and battery material lead ended at $2,125 tonnes from $2,200.

Lead stocks jumped to 155,775 tonnes, the highest since 2003, while nickel stocks hit a record high of 163,704 tonnes.

Nickel, a key ingredient for stainless steel, fell to $18,195 a tonne from $18,200 on Tuesday.

Aluminium, used widely in the transport and packaging industries, closed at $2,180 from $2,221 on Tuesday.

Metal Prices at 1708 GMT Metal Last Change Percent Move End 2009 Ytd Percent

move COMEX Cu 328.95 -3.95 -1.19 332.75 -1.14 LME Alum 2179.50 -41.50 -1.87 2230.00 -2.26 LME Cu 7220.00 -175.00 -2.37 7375.00 -2.10 LME Lead 2125.00 -75.00 -3.41 2432.00 -12.62 LME Nickel 18095.00 -105.00 -0.58 18525.00 -2.32 LME Tin 17750.00 -225.00 -1.25 16950.00 4.72 LME Zinc 2224.00 -94.50 -4.08 2560.00 -13.13 SHFE Alu 17000.00 25.00 +0.15 17160.00 -0.93 SHFE Cu* 59540.00 190.00 +0.32 59900.00 -0.60 SHFE Zin 19270.00 75.00 +0.39 21195.00 -9.08 ** 1st contract month for COMEX copper * 3rd contract month for SHFE AL, CU and ZN SHFE ZN began trading on 26/3/07 (Additional reporting by Humeyra Pamuk, Editing by Sue Thomas)