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METALS-Base metals fall on demand worries amid dragging trade war

Mai Nguyen

(Updates prices, adds details)

SINGAPORE, May 29 (Reuters) - Industrial metals fell on Wednesday on worries over global demand amid an extended trade war between China and the United States that has showed no signs of letting up.

China is ready to use rare earths to strike back in a trade war with the United States, Chinese newspapers warned on Wednesday in strongly worded commentaries on a move that would escalate tensions between the world's two largest economies.

China's factory activity is expected to have shrunk in May, keeping pressure on policymakers to roll out more stimulus to stabilise an economy hit by a bruising trade war with the United States, a Reuters poll showed on Wednesday.

"(Trade tension) is dominating the market at the moment and it's hard to see how that will change too much," said Daniel Hynes of ANZ.

"There have been plenty of positive fundamental factors emerging in recent time but the market has chosen to ignore them, so it's hard to say things can really recover on a sustainable basis," Hynes said.

FUNDAMENTALS

* COPPER: Three-month copper on the London Metal Exchange fell 0.6% to $5,924.50 a tonne by 0701 GMT, while the most-traded copper contract on the Shanghai Futures Exchange declined 0.9% to 46,810 yuan ($6,769.24) a tonne.

* LME: London aluminium dropped 0.4%, zinc declined 0.9%, lead fell 0.9% and tin was 0.5% lower.

* SHFE: Shanghai aluminium ended down 0.7%, while nickel tumbled 2.1% after several sessions of gains on short-covering by bearish investors.

* ZINC SPREAD: The premium of LME cash zinc over the three-month contract <CMZN0-3> was at $161 a tonne on Tuesday, the same level as on Monday and also a 22-year high, indicating near-term shortages in the LME system.

* LEAKAGE: Baiyin Nonferrous Group said it had halted production at a zinc smelting unit with an annual capacity of 85,000 tonnes after a sulphur dioxide leakage.

* ZINC SUPPLY: The global refined zinc supply has been tight due to limited smelting capacity, but a rising number of smelters in China is expected to increase the supply of the refined metal later this year.

* ZINC: "The supply side issues I don't think are going to turn around substantially and demand is holding relatively well. Our view has always been that the market will remain relatively tight," ANZ's Hynes said.

* CHINA SCRAP: China, in a move slightly earlier than previously expected by the industry, aims to grant import licences and a first batch of import quotas by the end of June for soon-to-be restricted scrap metal shipments into the nation.

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PRICES

Three month LME copper

Most active ShFE copper

Three month LME aluminium

Most active ShFE aluminium

Three month LME zinc

Most active ShFE zinc

Three month LME lead

Most active ShFE lead

Three month LME nickel

Most active ShFE nickel

Three month LME tin

Most active ShFE tin

ARBS ($1 = 6.9151 Chinese yuan)

(Reporting by Mai Nguyen; Editing by Richard Pullin and Subhranshu Sahu)