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METALS-Speculative buying lifts copper to three-year high

* LME/ShFE arb: http://tmsnrt.rs/2oQ5nm20 (Updates throughout, changes dateline from Sydney)

LONDON, Sept 5 (Reuters) - Copper rose for a fourth session on Tuesday to reach its highest since September 2014, supported by expectations of strong demand from top consumer China and a surge of speculative buying, though rallies in other industrial metals stalled.

Strong global manufacturing growth, a weaker dollar and supply concerns have driven copper, aluminum, nickel and zinc to multi-year highs.

"Its difficult to see much further upside in base metal prices from these levels, looking at how they have decoupled from other commodities and the rise in speculative positioning," said Danske Bank analyst Jens Pedersen.

However, prices are more likely to consolidate around current levels than fall sharply if economic data remains positive, Pedersen added.

LME COPPER: Benchmark copper on the London Metal Exchange was up 0.4 percent at $6,941 a tonne by 1003 GMT. It had earlier touched $6,970, the highest since September 2014 and close to the key psychological level of $7,000.

CHINA: Chinese manufacturing output accelerated in August and economic growth is expected to remain strong until the end of the year.

MANUFACTURING: Factories across Asia and Europe cranked up production last month amid continued strength in global demand.

SPECULATORS: Momentum funds and speculators in China are betting on higher prices as copper enters its ninth consecutive week of gains, with the net long position in COMEX copper rising to a record high last week.

However, the big speculative positions leave prices vulnerable to correction, analysts say.

Commerzbank said this week that metals had detached from supply and demand fundamentals, while Standard Chartered said that copper prices are likely to fall to $6,450 a tonne early next year.

STOCKS: Copper prices were supported by a fall in on-warrant stocks available to the market in LME-registered warehouses. The stocks dropped to 111,450 tonnes after 2,150 tonnes of cancellations and have more than halved since mid-July.<MCUSTX-TOTAL>

SUPPLY: Indonesia's deal to allow Freeport McMoRan Inc to continue operating its huge Grasberg copper mine improves the supply outlook and could help to push prices lower, Standard Chartered analysts said.

"The new agreement should end the periodic bans on concentrate exports that have resulted in an average of 240,000 tonnes per year of lost production since 2014," they said.

CHINA ALUMINIUM: China's southwestern Yunnan province is launching safety inspections on iron, steel and aluminum plants as part of a crackdown on outdated capacity. The province has aluminum smelting capacity of 1.7 million tonnes a year.

PRICES: LME aluminum was down 0.4 percent at $2,111 a tonne, zinc fell by 0.3 percent to $3,195, nickel lost 0.5 percent to $12,190, lead was down 0.6 percent at $2,378.50 and tin slipped by 0.1 percent to $20,770.

(Additional reporting by James Regan; Editing by David Goodman)