METALS-Copper falls on dollar, U.S. budget battle concerns

(Updates with official prices)

* Dollar rises to three-week high on budget concerns

* China service sector accelerates in December

* Coming up: U.S. weekly jobless claims at 1330 GMT

LONDON, Jan 3 (Reuters) - Copper fell on Thursday as the dollar firmed and the rally that followed a last-minute deal to avert a "fiscal cliff" of tax hikes and spending cuts faltered, but promising data from top copper consumer China helped restrain further losses. Benchmark copper on the London Metal Exchange was $8,165.50 per tonne in official rings, cutting gains from a close of $8,210 a tonne on Wednesday when rose to its highest since mid October on news that U.S lawmakers had reached a budget deal. With the fiscal cliff deal reached, President Barack Obama and congressional Republicans now face even bigger budget battles in the next two months on spending cuts and an increase in the nation's limit on borrowing, after a hard-fought deal narrowly averted devastating tax increases and spending cuts.

"With the uncertainty out of the way after the fiscal cliff resolution, as far as markets are concerned the focus is now on the huge budget gap that there is to cope with," said Andrey Kryuchenkov, analyst at VTB. The concerns over the budget wrangling that lies ahead lifted the dollar to a three-week high against a basket of currencies. The dollar is often favoured at times of market uncertainty and strategists said it could see further gains in coming weeks. "With the U.S. dollar looking stronger today we expect to see some softness in the commodities markets early but do expect yesterday's rally to continue throughout the month," RBC said in a research note. A stronger dollar makes metals, priced in the U.S. unit, more expensive for holders of alternative currencies. Kryuchenkov said attention was also focussed on the economic outlook for big metals consumer China, which has shown promising signs in the last few months.

Latest data showed growth in China's services sector accelerated in December at its fastest pace in four months, adding to signs of a modest year-end revival in the world's second-largest economy. "Non-manufacturing PMI showed a bigger than expected rise, providing yet more evidence that the turnaround of the Chinese economy is gaining pace with stronger economic growth likely in the months ahead," ETX Capital's Markus Huber said. Copper rose by more than 4 percent in 2012, following a 21 percent fall in 2011. Tin was the outstanding winner of the base metals complex last year, rising almost 22 percent, while lead rose by 15 percent, zinc by 13 percent and aluminium by 3 percent. Bucking the trend, stainless steel material nickel lost 9 percent in 2012.

BULLISH LEAD Battery material lead was $2,418.50 per tonne in rings from a last bid of $2,430 on Wednesday. It hit a session high of $2,499, its highest level since early September 2011, supported by tightening supplies. Some analysts expect more gains for the metal in the medium-term. "Lead remains our preferred metal on a medium-term basis, and we expect prices to increase substantially over 2013-15," Credit Suisse said in a note. "In the short term, we expect lead prices to push higher alongside other base metals on improving macroeconomic conditions." Lead stocks at LME warehouses dropped to 314,550 tonnes, the lowest since late October. The ratio of cancelled warrants - material earmarked for delivery - to total stocks rose to a record of close to 57 percent. <0#MPBSTX-LOC>. Benchmark zinc was $2,127 a tonne in rings from a close of $2,141 on Wednesday. On Thursday, it hit its highest since early February at $2,187.25. Aluminium was $2,145 in rings from $2,160, tin was $24,150 from a last bid of $24,445 and nickel was $17,590 from $17,725.

Metal Prices at 1307 GMT Comex copper in cents/lb, LME prices in $/T and SHFE prices in yuan/T

Metal Last Change Pct Move End 2012 Ytd Pct

move

COMEX Cu 371.30 -1.75 -0.47 365.25 1.66 LME Alum 2147.50 -12.50 -0.58 2073.00 3.59 LME Cu 8172.50 -37.50 -0.46 7931.00 3.05 LME Lead 2419.00 84.00 +3.60 2330.00 3.82 LME Nickel 17615.00 -110.00 -0.62 17060.00 3.25 LME Tin 24122.00 722.00 +3.09 23400.00 3.09 LME Zinc 2127.50 -13.50 -0.63 2080.00 2.28 SHFE Alu 15365.00 20.00 +0.13 15435.00 -0.45 SHFE Cu* 57770.00 190.00 +0.33 57690.00 0.14 SHFE Zin 15520.00 -25.00 -0.16 15625.00 -0.67 ** Benchmark month for COMEX copper * 3rd contract month for SHFE AL, CU and ZN

SHFE ZN began trading on 26/3/07

(Editing by William Hardy)