METALS-Copper recovers as trade fears recede, aluminum hits 3-month low

* LME/ShFE arb:

* GRAPHIC-2018 asset returns: (Recasts, updates prices, adds quote/details; changes dateline)

LONDON, March 29 (Reuters) - Copper rose on Thursday on receding fears about a trade war but was still set to end the quarter down about 7 percent, while aluminum hit a three-month low on rising stocks and disappointment over China's winter output curbs.

Metals markets were shaken this month when U.S. President Donald Trump moved to impose tariffs on Chinese goods and Beijing threatened retaliation. But fears of a trade war have eased on hopes that negotiations can bring a compromise.

Aluminum remains particularly weak however, with Shanghai inventories at record levels of nearly 1 million tonnes <AL-STX-SGH> and London Metal Exchange inventories at 1.29 million tonnes, up nearly 20 percent since early February <MAL-STOCKS>.

"I think the reaction to Trump's trade barriers is vastly overdone," said John Meyer, partner at broker SP Angel.

"There will be some token retaliation (but) China is going to continue to grow and the world will continue to consume a near similar amount of metal to before the tariffs, the metal will just be sourced from different places."

On aluminum, Meyer said that, while China's cuts often disappoint because it usually increases better quality production at the same time as cutting inefficient output, the latest deliveries onto the LME were the usual post Lunar New Year flows.

* COPPER: LME copper was up 0.8 percent at $6,715 a tonne at 1116 GMT. Prices this week fell to their weakest since early December and are on course for a 7 percent loss for the quarter after double-digit growth for the past two years.

* HOLIDAY: The LME will be closed on Friday, March 30, and Monday, April 2, for the Easter holiday, with normal trading resuming on Tuesday.

* ALUMINIUM: LME aluminum traded down 0.8 percent at $2,010.50, its lowest since mid-December last year.

* JAPAN ON TARIFFS: Japan's aluminum industry on Thursday called for the United States to scrap import tariffs on aluminum, saying they were against international rules and pose a serious problem.

* CHINA CUTS: China's winter heating season ended on March 15 after Beijing ordered smelters in 28 of its smoggiest northern cities to cut output by 30 percent from mid-November to mid-March. However, the actual volume cut was below expectations, putting pressure on prices.

* DOLLAR: The dollar steadied after a stronger-than-expected revision to U.S. Q4 growth and hopes that a nuclear standoff with North Korea has been averted gave it its largest daily gain in six months on Wednesday.

* CHINA GROWTH: Growth in China's manufacturing sector likely picked up slightly in March as authorities lifted winter industrial pollution restrictions and steel mills cranked up production as construction activity swings back into high gear.

(Additional reporting by Melanie Burton Editing by Edmund Blair)