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METALS-Copper hits 3-month low on rising inventories, trade war fears

* LME/ShFE arb: http://bit.ly/2wZSAEz

* GRAPHIC-2018 asset returns: http://tmsnrt.rs/2jvdmXl (Recasts with copper three month low, fresh comments)

LONDON, March 20 (Reuters) - Copper slumped to its lowest level in more than three months on Tuesday as rising inventories highlighted healthy supplies.

Concern about trade wars, higher U.S. interest rates and a stronger dollar also weighed on industrial metals markets.

London Metal Exchange prices extended losses in the European afternoon as U.S. computer-driven funds stepped up selling.

"The U.S. has opened up and they're carrying on the negative sentiment," said Geordie Wilkes, head of research at Sucden Financial.

In the morning, copper was hit by data showing LME copper stocks <MCUSTX-TOTAL> grew by a further 3,200 tonnes on Tuesday to 322,475 tonnes, bringing the surge this month to 61 percent.

While some investors have been worried that potential strikes at copper mines may create shortages, this was not a major threat due to robust supplies, said Caroline Bain, chief commodities economist at Capital Economics.

"We've been forecasting from the beginning that copper prices would fall this year because we just didn't think the market was that tight," she said, adding that her year-end target was $6,500.

Three-month LME copper was down 1.4 percent at $6,760 a tonne by 1500 GMT, marking a fourth session of losses, after touching $6,730, the weakest since Dec. 14.

* ZAMBIA: Further highlighting growing supplies of copper, Zambia said it expects to produce more than one million tonnes of copper this year after revising its 2017 copper production upwards on the back of stable power supply.

* TRADE WARS: Also weighing on markets were fears of a global trade after U.S. President Donald Trump imposed hefty import tariffs on steel and aluminium, and, according to sources in Washington, was set to unveil new tariffs specifically targeting China by the end of this week.

* ZINC: LME benchmark zinc fell 1.8 percent to $3,201 a tonne.

* ZINC STOCKS: LME zinc stocks have shot up <MZNSTX-TOTAL> 60 percent this month, climbing by another 5,350 tonnes on Tuesday to 211,400 tonnes.

"We've always suspected that there were stashes of metal being held off market and when the price was right they would become visible," Bain said.

* USD: The dollar rose broadly on Tuesday, hitting a one-week high against the yen, as investors awaited clues from the Federal Reserve on interest rates on Wednesday.

Higher U.S. rates may support a rising dollar, which would limit demand for dollar-denominated commodities such as copper from buyers paying with other currencies.

* ALUMINIUM: LME aluminium fell 0.5 percent to $2,078 a tonne, with losses moderating after Japanese aluminium buyers agreed to pay producers premiums during the second quarter that are 25 percent higher than the first quarter, reflecting surging spot premiums in the United States.

* PRICES: Lead dropped 1.7 percent to $2,327 a tonne, nickel lost 0.5 percent to $13,415 and tin edged up 0.2 percent to $20,815.

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(Additional reporting by Tom Daly in Beijing Editing by Louise Heavens and Susan Fenton)