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METALS-Zinc hits fresh high, pulls back on uncertainty about demand

* LME/ShFE arb: http://tmsnrt.rs/2oQ5nm2 (Recasts, updates prices)

LONDON, June 20 (Reuters) - Zinc prices retreated on Tuesday after hitting their highest in over 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 news 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 in the morning when zinc was firmer.

"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 was down 0.4 percent at $2,547 a tonne at 1411 GMT, 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 which should send galvanizers' utilization rates lower," Citi analyst Nell Agate said in a note.

The biggest use for zinc is for galvanizing steel.

* NICKEL: LME nickel shed 0.6 percent to $8,955 a tonne. Prices got a fillip on Monday from news that about a dozen newly constructed nickel smelters in Indonesia have stopped operations due to a plunge in prices.

* ALUMINIUM: LME aluminium added 0.2 percent to $1,890 a tonne on continued concern about a crackdown by the Chinese government on illegal and polluting smelters.

Data released on Tuesday, however, showed that overall aluminium output rose slightly last month both in top producer China and in the rest of the world.

* TIN: LME tin added 0.1 percent at $19,585 a tonne as the market digested news that China's Yunnan Tin Co Ltd 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.

* PRICES: LME copper fell 1.1 percent to $5,660 a tonne and lead gave up 0.5 percent to $2,119 a tonne.

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(Additional reporting by Melanie Burton in Melbourne, editing by Pritha Sarkar and David Evans)