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METALS-Chinese stimulus plans support prices, zinc volatile

Eric Onstad

* GRAPHIC-2019 asset returns: (Adds analyst comment, updates prices, changes dateline from MANILA/BEIJING)

LONDON, March 15 (Reuters) - Industrial metals prices got support on Friday after Chinese Premier Li Keqiang vowed to use government levers to underpin growth, while zinc prices lurched on news of a tax cut.

Li promised broad policy steps to prevent a sharper slowdown for the world's second-biggest economy, the biggest consumer of base metals.

"I think that has helped to stabilize the sentiment and calm the market, but there is still some macro uncertainty lingering, so we're not seeing a massive rally in the metals prices," said Xiao Fu, head of commodity market strategy at Bank of China International in London.

"Although the trade talks are progressing, we still don't know the outcome and there's some worry about the general weaker global GDP outlook."

Benchmark aluminum on the London Metal Exchange was up 0.2 percent at $1,907 a tonne by 1100 GMT after touching $1,914, the strongest since March 4.

* VAT CUT: Zinc prices fluctuated wildly and Shanghai Futures Exchange (ShFE) spreads ballooned after Li said a planned cut in value-added tax (VAT) on China's manufacturing sector, which includes non-ferrous metals, would take effect from April 1.

Some speculators on the ShFE had previously bet that the planned cut in VAT would be implemented on May 1, increasing the backwardation on metals, including copper and aluminum.

* SHFE SPREADS: The backwardation between the March and April ShFE copper contracts spiked to over 1,000 yuan a tonne, the highest since May 2014, after Li's comments. The spread between April and May, previously in a steep backwardation, immediately flipped into a deep contango.

* ZINC: LME zinc spiked 2 percent to $2,882 a tonne, the highest since July 2, immediately after Li's comments, before profit-taking saw the metal used to galvanize steel slip 0.6 percent to $2,809 a tonne.

It is still on course for a 3 percent gain this week, which would be its best week in six, as investors worry about tight stocks.

* LME ZINC BACKWARDATION: Low inventories and fears of production outrages has spurred a strong backwardation in LME zinc, Jinrui Futures said in a note.

The premium for cash zinc over the three-month LME contract <CMZN0-3> stood at $55 a tonne at Thursday's close, the highest since early January.

* SHANGHAI ZINC: The most traded May ShFE zinc contract rose as much as 1.4 percent to 22,170 yuan ($3,299.55) a tonne, the highest since April 2, before closing down 1 percent.

* LME COPPER STOCKS: LME copper inventories <MCUSTX-TOTAL> have surged 67 percent over the past two days, weighing on the price. LME copper added 0.1 percent to $6,411 a tonne.

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($1 = 6.7191 Chinese yuan)

(Additional reporting by Enrico dela Cruz in MANILA and Tom Daly in BEIJING; editing by Louise Heavens)