* Copper inventories fall 9 pct since early May
* Tin backwardation persists, closed above $150/T Wednesday
* LME/ShFE arb: http://tmsnrt.rs/2oQ5nm2 (Recasts, adds comment, changes dateline from Sydney)
LONDON, May 25 (Reuters) - Copper prices steadied on Thursday as a weaker dollar and falling metal inventories supported sentiment and gains were capped by expectations of weaker demand in top consumer China over the coming months.
Benchmark copper on the London Metal Exchange was unchanged at $5,682 a tonne at 0944 GMT.
"The downgrade to China's credit rating yesterday has unnerved people," said Caroline Bain, chief commodities economist at Capital Economics. "There are clear signs China's economy is coming off the boil and that demand will be weaker in the second half of the year."
CHINA DOWNGRADE: Moody's downgraded China's credit rating for the first time in nearly 30 years, saying it expects the financial strength of the economy to erode in coming years as growth slows and debt continues to rise.
COPPER STOCKS: Inventories of the metal used in power and construction at 321,575 tonnes in LME warehouses are down more nine percent since hitting a 7-month high above 354,000 tonnes earlier in May. <MCUSTX-TOTAL>
DOLLAR: A lower U.S. currency makes dollar-denominated commodities cheaper for non-U.S.-firms, which could potentially boost demand for metals.
STRIKES: Some support from a strike at the giant Grasberg copper mine operated by the Indonesian unit of Freeport McMoRan .
CHINA CREDIT: "Much of the price weakness in copper is because of the tighter credit situation in China," said Ingrid Sternby, senior research analyst at Blenheim Capital Management. "When this reverses the Chinese speculative community will look at copper in a more positive light."
CHINA DEMAND: China accounts for nearly half of global copper demand estimated at around 23 million tonnes this year.
COPPER TECHNICALS: Resistance around the 55-day moving average at $5,720 and support at $5,625, around the 21-day moving average.
ALUMINIUM SUPPLY: Focus in the aluminium market is on plans by Chinese authorities to clampdown on polluting industries. China produces more than half of the world's aluminium, estimated at around 60 million tonnes this year.
ALUMINIUM PRICES: Three-month aluminium was up 0.4 percent at $1,952 a tonne, within sight of the $1,981 hit in March, its highest since Dec 2014.
TIN STOCKS: At 2,060 tonnes, stocks of tin in LME warehouses are at their lowest since May 1989. Benchmark tin gained 0.2 percent to $20,410 a tonne.
TIN SPREAD: Tight supplies on the LME market have created a hefty premium for the cash over the three-month contracts <MSN0-3>. It ended Wednesday at $151 a tonne, not far from Tuesday's $180, the highest since Dec. 2016.
PRICES: Zinc slid 0.5 percent to $2,621, lead fell 0.1 percent to $2,075 and nickel added 0.1 percent to $9,105.
(Editing by David Evans)