* LME/ShFE arb: http://tmsnrt.rs/2oQ5nm2 (Updates with closing prices)
LONDON, June 20 (Reuters) - Zinc prices retreated on Tuesday after hitting their highest in more than two weeks as investors sought to balance concerns about tightening supplies with uncertainty over Chinese demand.
A steady stream of news has encouraged the bulls recently, including a talk of a market deficit, an expected strike in major producer Peru and declining inventories.
But monetary tightening in China has stoked worries about the appetite for industrial metals in its biggest market.
"You've got some news with a bullish tone, so that's supporting the market, but I don't know how sustainable all this will be," said Gianclaudio Torlizzi, Partner at consultancy T-Commodity in Milan when zinc was firmer during morning trade.
"We have a small long, but we're not married to this position because the general outlook is still not really bullish. Monetary tightening in China is still taking place."
* ZINC: Benchmark zinc on the London Metal Exchange closed 0.04 percent down at $2,555 a tonne, retreating from an intraday peak of $2,581.50, the highest since June 1.
"Potential weakness of zinc prices in the upcoming months may stem from tepid demand for galvanized steel," Citi analyst Nell Agate said in a note.
The biggest use for zinc is to galvanize steel.
* NICKEL: LME nickel shed 2.1 percent to end at $8,820 a tonne. Prices received a fillip on Monday from news that about a dozen newly constructed nickel smelters in Indonesia have stopped operations because of a plunge in prices.
* ALUMINIUM: LME aluminum finished unchanged at $1,886.50 a tonne, supported by continued concern about a crackdown by the Chinese government on illegal and polluting smelters.
Prices were in positive territory during most of the session but edged back after data was released showing that overall aluminum output rose slightly last month both in top producer China and in the rest of the world.
* TIN: LME tin finished 0.4 percent down at $19,505 a tonne as the market digested news that China's Yunnan Tin Co , the world's biggest tin producer, said it had received government approval for so-called "processing trade," churning out refined metal for export using concentrate shipped in from abroad.
* OTHER PRICES: LME copper ended 1.2 percent weaker at $5,657 a tonne while lead gave up 0.1 percent to $2,127.50.
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(Additional reporting by Melanie Burton in Melbourne; Editing by Pritha Sarkar and David Goodman)