(Adds comment, detail, updates prices) MELBOURNE, May 22 (Reuters) - Shanghai zinc and nickel surged on Monday on the back of a sustained crackdown in China's polluting steel industry, which fueled worries about supply of the construction material and lifted prices of its raw materials. Both metals were jolted out of a downtrend that last week saw them touch their lowest for the year amid concerns about a slowdown in China's metals demand. The rally in steel prices also caught short-holders by surprise and forced them to cover their positions. "It's all very macro-driven at the moment," said analyst Daniel Morgan at UBS in Sydney. He said that the metals market, including steel, was overheated in the first quarter given strong growth in top consumer China, but the country's recent shift towards credit tightening had pushed the sector to overcorrect. "When it's all done and dusted, I think this year will have been a reasonable year for commodities."
* ZINC: Shanghai Futures Exchange zinc surged 4.7 percent. London Metal Exchange zinc rallied 0.9 percent to $2,655 a tonne, having earlier struck its highest in two weeks at $2,667 a tonne, the most expensive since May 2.
* NICKEL: SHFE nickel jumped 2.6 percent, while LME nickel was off earlier highs, but still up 0.3 percent.
* CHINA POLLUTION: China's Tangshan city launched a campaign to improve air quality last week, saying steel mills in the country's top producing region that fail to meet emission standards face suspension and heavy fines.
* CHINA PROPERTY: China issued a draft of new rules for property sales and leasing on Friday to improve management and operation in a part of the services sector that is often poorly regulated.
* COPPER: LME copper had edged down 0.2 percent to $5,669.50 a tonne by 0140 GMT, having hit the highest since early May at $5,694.50 a tonne on Friday. The ShFE copper contract was up 1.5 percent at 45,820 yuan ($6,649) a tonne.
* CHINA ECONOMY: China's economy will likely expand around 6.8 percent in the second quarter of 2017, the State Information Center said in an article published in the state-owned China Securities Journal on Saturday.
* FREEPORT: An estimated 9,000 workers at the giant Grasberg copper mine operated by the Indonesian unit of Freeport McMoRan Inc will extend a strike for a second month, a union official said on Saturday, in an ongoing dispute over employment terms and layoffs. PRICES
BASE METALS PRICES
Three month LME copper 5671 Most active ShFE copper 45800 Three month LME 1937
Most active ShFE 13985
Three month LME zinc 2637 Most active ShFE zinc 22235 Three month LME lead 2114 Most active ShFE lead 15755 Three month LME nickel 9385 Most active ShFE nickel 78080 Three month LME tin 20400 Most active ShFE tin 145700
BASE METALS ARBITRAGE
LME/SHFE COPPER LMESHFCUc3 151.88 LME/SHFE ALUMINIUM LMESHFALc3 -1541.49 LME/SHFE ZINC LMESHFZNc3 347.09 LME/SHFE LEAD LMESHFPBc3 -1620.76 LME/SHFE NICKEL LMESHFNIc3 1422.76
($1 = 6.8830 Chinese yuan renminbi)
(Reporting by Melanie Burton; Editing by Richard Pullin and Joseph Radford)