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METALS-London zinc, nickel stretch rally on steel gains

(Adds detail, updates prices) MELBOURNE, Aug 21 (Reuters) - London zinc rose to its highest price in a decade on Monday and nickel also rallied as investors ploughed into metals used by China's steel sector, seeing robust demand even as capacity is constrained by Beijing's drive for industry reform. "Metals are pretty strong. The USD has been weaker and the Federal Reserve has turned a bit more dovish so that is supportive," said analyst Lachlan Shaw of UBS in Melbourne. Shaw noted that China's steel and aluminium markets could tighten with central government mandated cuts over the winter, as Beijing acts to clear its skies, although the aluminium cuts should be offset by rising Shanghai warehouse inventories. "Closing old and inefficient steel capacity in the 26 + 2 cities is set to cut production by 50 percent and aluminum by 30 percent, before mills and smelters elsewhere in China lift output to compensate," he said. "(This)... is driving positive sentiment right now."

FUNDAMENTALS

* LME ZINC: London Metal Exchange (LME) zinc hit the highest since October 2007 at $3,180.50 a tonne. Prices were up 0.8 percent at $3,150 at 0700 GMT. LME nickel, used in the stainless steel sector, rallied by 1.7 percent, touching its highest price this year.

* LME COPPER: LME copper rallied 1 percent, having earlier struck $6,593 a tonne, the highest since Nov. 2014.

* CHINA STEEL: China's iron ore futures rose for a third day on Monday, soaring more than 6 percent, fuelled by concerns of shortages of high-grade iron ore and before curbs on futures purchases come into force.

* SHFE: Shanghai Futures Exchange copper showed 1.5 percent gains. SHFE nickel rallied 3.9 percent while SHFE zinc ended up 1.7 percent.

* JAPAN: Confidence at Japanese manufacturers rose to its highest level in a decade in August led by materials producers, a Reuters poll showed, a further sign of broadening recovery in the economy.

* ALUMINIUM: Cash aluminium has soared against the benchmark contract, reflecting a rush on immediate supply. Cash aluminium traded at a $9.50 premium against the benchmark, up from a $21 discount in early August. <CMAL0-3>

* CHALCO: The president of Aluminum Corp of China (Chalco) said that it had increased aluminium production in the first half of 2017 to take advantage of capacity cuts by private rivals, and would continue to raise production in the second half.

* COPPER: Limited access to the giant Grasberg copper mine in eastern Indonesia is expected to resume on Monday, its operator said

* COPPER: Protesters in Peru have removed barriers on a road used by MMG Ltd to move its copper concentrate from its Las Bambas mine to port for shipping.

* COMEX: Speculators in Comex copper boosted their record long position in the latest week, regulatory data showed.

* AFGHANISTAN: U.S. President Donald Trump is eyeing Afghanistan's mineral wealth to help pay for a 16-year war and reconstruction efforts that have already cost $117 billion.

PRICES

BASE METALS PRICES 0705 gmt Three month LME copper 6544.5 Most active ShFE copper 51640 Three month LME aluminium 2079 Most active ShFE aluminium 16425 Three month LME zinc 3152 Most active ShFE zinc 26390 Three month LME lead 2386 Most active ShFE lead 19630 Three month LME nickel 11185 Most active ShFE nickel 91030 Three month LME tin 20340 Most active ShFE tin 144700

BASE METALS ARBITRAGE

LME/SHFE COPPER LMESHFCUc3 667.47 LME/SHFE ALUMINIUM LMESHFALc3 317.55 LME/SHFE ZINC LMESHFZNc3 1172.45 LME/SHFE LEAD LMESHFPBc3 343.53 LME/SHFE NICKEL LMESHFNIc3 1690.53

(Reporting by Melanie Burton; Editing by Kenneth Maxwell and Richard Pullin)