METALS-Nickel and zinc rebound, China demand worries cap gains

* LME/ShFE arb: http://bit.ly/2wZSAEz (Updates throughout, changes dateline from Melbourne)

LONDON, Sept 25 (Reuters) - Zinc and nickel rose on Monday after steep falls late last week and copper prices stabilized, but gains were limited by caution over the demand outlook from top metals consumer China and a stronger U.S. dollar.

"We are trying to establish floors now that we are down from recent highs," said Robin Bhar, head of metals research at Societe Generale.

"We are back at what people would perceive as closer to fair value so we should be bottoming out," he said.

ZINC: Three-month zinc on the London Metal Exchange was up 1.7 percent at $3,083 a tonne by 1027 GMT, having dropped to a one-week low of $3,000 on Friday.

SPREAD: Tight supplies of metal raised the premium of cash zinc to the three-month contract <MZN0-3> to its highest since 2007 at $46, which traders said is likely to encourage deliveries into LME warehouses.

STOCKS: On-warrant stocks of zinc available to the market in LME-registered warehouses have fallen by more than 50 percent this year.

CHINA DEMAND: New measures to slow home sales and a downgrade of China's long-term sovereign credit rating last week have dampened expectations of Chinese demand for metals.

CHINA SUPPLY: Closures of polluting smelters have supported prices, with cities in Anhui province the latest to issue plans to curb production in the steelmaking, non-ferrous smelting, cement and coal-fired power sectors.

GERMANY: Business confidence in Germany deteriorated unexpectedly in September, suggesting that the economy could lose some momentum in the coming months.

DOLLAR: U.S. Federal Reserve signals that it could raise interest rates in December could strengthen the dollar, weakness in which has fueled demand for metals this year by making them cheaper for holders of other currencies.

KOREA: Some banks are paring back credit lines to smaller trading firms holding industrial metals in South Korea because of escalating tensions over North Korea, sources said.

DISCOUNTS: Traders said worries over metals stockpiles in South Korean warehouses had helped to increase the discounts of cash nickel, copper and aluminum to their three-month contracts. The discounts are near multi-year highs. <MNI0-3> <MCU0-3> <MAL0-3>

SPECULATORS: Hedge funds and money managers cut their net long position in COMEX copper in the latest week, CFTC data showed.

NICKEL: LME nickel was up 1 percent at $10,530 a tonne after falling more than 8 percent over Thursday and Friday, when the Shanghai Futures Exchange raised trading fees to curb speculative investment.

COPPER: LME copper was up 0.2 percent at $6,467.50. On Friday it touched $6,366, the lowest since Aug. 16.

PRICES: Aluminium was down 0.5 percent at $2,148 a tonne, lead rose 0.4 percent to $2,492.50 and tin was up 0.3 percent at $20,590.

(Additional reporting by Melanie Burton; Editing by David Goodman)