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METALS-Copper rebounds on hopes for trade deal, but market vulnerable

Eric Onstad

(Adds analyst comment, updates prices, changes dateline from SINGAPORE)

LONDON, May 10 (Reuters) - Copper and other industrial metals rebounded on Friday on hopes a U.S.-China trade deal would be hammered out, but they remained vulnerable to further friction between the world's two biggest economies.

Negotiators in Washington agreed to stay at the table for a second day on Friday even after the United States escalated a tariff war with China by hiking levies and Beijing threatened retaliation.

"I was expecting to come in this morning to a sea of red, but I think there had been feelings that talks could have broken down completely. That hasn't been the case and provided at least some reassurance," said Ross Strachan, senior commodities economist at Capital Economics in London.

"The markets generally have been fairly sanguine about the prospects for a deal and that does leave some downside scope for the metals to be hit by further nasty surprises in coming days."

Benchmark copper on the London Metal Exchange was up 1.1% at $6,166 a tonne by 1005 GMT, but held on track for its fourth straight weekly decline.

"The higher tariffs will have a significant negative effect on (Chinese) exports, against the backdrop of a slowing economy," said Michael Taylor, Moody's Investors Service managing director and chief credit officer for Asia Pacific.

Further policy easing by China will mitigate only some of the impact, he added.

* COPPER PREMIUM: The Yangshan copper premium for physical metal in China <SMM-CUYP-CN> has increased for the third straight session to $51.50 a tonne, up from a two-year low of $48.

* NICKEL SPREAD: The discount of LME cash nickel to the three-month contract <CMNI0-3> hit its lowest since mid-January this week at $39.50 a tonne, showing tighter availability. It has fallen from $84 over the past three weeks, and was last at $43.

* NICKEL STOCKS: LME nickel inventories <MNISTX-TOTAL> fell to 169,578 tonnes, the lowest since April 2013, LME data showed.

* STEEL: China's construction rebar futures rose, giving further support to nickel, which is mainly used to make stainless steel.

* NICKEL PRICES: The LME three-month nickel price was the best performer on the exchange on Friday, rising 1.8% to $11,970 a tonne.

* PRICES: LME aluminium added 0.2% to $1,801.50 a tonne, zinc rose 0.7% to $2,629, lead dipped 0.1% to $1,834 and tin increased 0.4% to $19,335.

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(Additional reporting by Mai Nguyen in Singapore; Editing by Jan Harvey)