* Zinc reaches highest since August 2007 at $3,359/T
* GRAPHIC-2017 asset returns: http://tmsnrt.rs/2jvdmXl
* LME/ShFE arb: http://bit.ly/2wZSAEz (Updates throughout, adds LONDON dateline)
LONDON, Jan 4 (Reuters) - Zinc climbed to a decade high on Thursday on concerns about the market deficit, while copper rose 1.5 percent after upbeat Chinese data shored up growth expectations in the world's biggest metals consumer.
Zinc stocks held in London Metal Exchange warehouses <MZN-STOCKS> fell 250 tonnes to their lowest since late 2008, data showed on Thursday, down by a third from their October peak.
"The market is definitely tight. We saw a dramatic fall in stocks last year," Capital Economics analyst Caroline Bain said. "Mine supply fell off particularly in the preceding years, and we started to see that in the refined market, and the fall in refined stocks, last year."
She said there was justification for high prices, although mine supply was showing signs of picking up. "Over the course of this year, we expect the market to be loosening," she said.
Industrial metals benefited more broadly from optimism over the outlook for China, analysts said. A private sector survey on Thursday showed China's services sector activity expanded at its fastest pace in more than three years in December.
* ZINC PRICES: Three-month zinc on the London Metal Exchange was at $3,353 a tonne by 1050 GMT, up 0.8 percent, having earlier risen to its highest since August 2007 at $3,359 a tonne.
* POSITIONING: Large holdings of LME zinc warrants <0#LME-WHL> have stoked concerns about availability, holding the premium for cash over the three-month contract CMZN0-3> at $19.50 a tonne, against a $10.25 discount on Dec. 20.
* ZINC OUTLOOK: Zinc prices are likely to keep rising over the next six to nine months, Goldman Sachs said in its outlook for 2018, based on refined stocks drawing down, a larger than consensus deficit for 2017 and Chinese zinc mine supply being unlikely to respond to higher prices during the first half.
* COPPER PRICES: Three-month copper on the London Metal Exchange was up 1.4 percent at $7,249.50 a tonne.
* FINANCIAL MARKETS: The dollar edged lower on Thursday, while strong data from the world's biggest economies boosted equities, sending stock index records tumbling and oil prices to their highest since mid-2015.
* LEAD PRICES: LME three-month lead was up 0.2 percent at $2,582.50 a tonne.
* DEFICIT: Wood Mackenzie forecasts the lead market will see a deficit of 115,000 tonnes this year and 56,000 tonnes in 2019, after a 119,000-tonne shortfall last year.
* PRICES: LME aluminium was up 0.8 percent at $2,246.50 a tonne, while nickel was 1.9 percent higher at $12,655 a tonne and tin was up 0.3 percent at $19,950 a tonne.
(Additional reporting by James Regan in Sydney; Editing by Edmund Blair)