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METALS-Zinc sheds gains, spreads surge after China flags April tax cut

its mining contractor depleted stocks.

(Adds detail, Shanghai closing prices, and updates London prices) MANILA/BEIJING, March 15 (Reuters) - Zinc prices fluctuated wildly on Friday and Shanghai Futures Exchange (ShFE) spreads ballooned after Chinese Premier Li Keqiang said a planned cut in value-added tax (VAT) would take effect from April 1. London 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 into the red. 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. The low-inventory situation, as well as fears of production outrages, has spurred the backwardation in London Metal Exchange zinc higher, Jinrui Futures said in a note. The premium for cash zinc over the three-month LME contract <CMZN0-3> stood at $55 a tonne on Thursday, the highest since early January. Some speculators on the ShFE had previously bet that the planned cut in VAT on China's manufacturing sector, which includes non-ferrous metals, to 13 percent from 16 percent would be implemented on May 1, increasing the backwardation on metals including copper and aluminum.

FUNDAMENTALS

* LME ZINC: Three-month LME zinc was trading down 0.9 percent at $2,800 a tonne, as of 0743 GMT. 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.

* ZINC: Vedanta Zinc International, a unit of diversified miner Vedanta Resources, said on Thursday it would close its zinc refinery in Namibia for five weeks after a strike

* COPPER: Benchmark LME copper added 0.5 percent to $6,435.50 a tonne, while ShFE copper inched up 0.1 percent to 49,320 yuan a tonne.

* 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.

* VOLUMES: Trading volumes on the May ShFE copper contract were 326,806 lots, almost double the 30-day average.

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MARKETS NEWS

* Asian stocks advanced as sentiment improved on a report that U.S.-China trade talks were making progress and after UK lawmakers voted to delay a potentially chaotic exit from the European Union.

PRICES

BASE METALS PRICES 0745 GMTThree month LME copper 6433Most active ShFE copper 49310Three month LME aluminum 1909Most active ShFE aluminum 13660Three month LME zinc 2799Most active ShFE zinc 21650Three month LME lead 2104Most active ShFE lead 17200Three month LME nickel 12990Most active ShFE nickel 100530Three month LME tin 21275Most active ShFE tin 147260

BASE METALS ARBITRAGE

LME/SHFE COPPER LMESHFCUc3 -743.9LME/SHFE ALUMINIUM LMESHFALc3 -1076.47LME/SHFE ZINC LMESHFZNc3 -593.73LME/SHFE LEAD LMESHFPBc3 332.4LME/SHFE NICKEL LMESHFNIc3 1379.8

($1 = 6.7191 Chinese yuan)

(Reporting by Enrico dela Cruz in MANILA and Tom Daly in BEIJING; Editing by Subhranshu Sahu and Sherry Jacob-Phillips)