METALS-Copper edges down as dollar rises on U.S. budget concerns

(Updates with closing prices, changes details)

* China service sector accelerates in December

* U.S. jobless claims rise in holiday-distorted week

LONDON, Jan 3 (Reuters) - Copper fell slightly on Thursday as the dollar firmed on worries about new budget battles over spending cuts in the United States, though promising data from top metals consumer China helped to cap losses. Benchmark copper on the London Metal Exchange closed at $8,154 a tonne, down from $8,210 on Wednesday, when it reached its highest level since mid-October after news that U.S lawmakers had reached a deal on tax increases. After a deal narrowly averted the so-called "fiscal cliff", 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. "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," VTB Capital analyst Andrey Kryuchenkov said. 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 make further gains in the 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.

CHINA REVIVAL SIGNS A stronger dollar makes metals, priced in the U.S. currency, more expensive for holders of other currencies. Kryuchenkov said that attention was also focused on the economic outlook for China, which has shown promising signs in the past few months. The latest data showed growth in China's services sector accelerated in December at its fastest pace for 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 was little changed after data showed the number of Americans filing new claims for unemployment benefits rose last week, because the data was too distorted by the holidays to offer a clear read of labour market conditions.

Copper rose by more than 4 percent in 2012, against a 21 percent fall in 2011. Tin was the outstanding winner of the base metals complex last year, climbing 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, untraded in the final ring, was last bid at $2,399 a tonne from a last bid of $2,430 on Wednesday. It hit a session high of $2,499, its highest since early September 2011, supported by tightening supplies. Some analysts expect more gains for the metal. "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 finished at $2,088 a tonne from a close of $2,141 on Wednesday. On Thursday it hit its highest since early February at $2,187.25. Aluminium closed at $2,116, from $2,160; tin at $23,980, from a last bid of $24,445; and nickel at $17,500, from $17,725.

Metal Prices at 1717 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 372.05 -1.00 -0.27 365.25 1.86 LME Alum 2114.50 -45.50 -2.11 2073.00 2.00 LME Cu 8161.00 -49.00 -0.60 7931.00 2.90 LME Lead 2381.00 46.00 +1.97 2330.00 2.19 LME Nickel 17494.00 -231.00 -1.30 17060.00 2.54 LME Tin 23925.00 525.00 +2.24 23400.00 2.24 LME Zinc 2088.50 -52.50 -2.45 2080.00 0.41 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 and David Goodman)