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METALS-Copper hits near 5-month low after China-U.S. tension flares

Eric Onstad

* Tin hits near 6-month low as inventories surge

* GRAPHIC-2019 asset returns: http://tmsnrt.rs/2jvdmXl (Updates with official prices, adds lead balance)

LONDON, May 29 (Reuters) - Copper prices slumped to the lowest in almost five months on Wednesday on fears an escalation in U.S.-China trade tension will damage economic growth and curb metals demand.

Reports in Chinese newspapers that the world's second biggest economy was ready to use rare earths to strike back in a trade war with the United States hit global financial markets.

"It's that potential escalation and continued focus on a disruptive impact of a ban on rare earth exports which is rattling the markets again this morning," said Ole Hansen, head of commodity strategy at Saxo Bank in Copenhagen.

"Into this there's really not much upside to be found with industrial metals, which thrive on growth and demand. If demand side starts to fade away, then it's difficult to see what would be holding metals up."

Benchmark copper on the London Metal Exchange slid to $5,873.50 a tonne in electronic trading, the lowest since Jan. 4, after edging up 0.1% on Tuesday.

It shed 1.2% in official open outcry trading to $5,888.

Copper has lost 11% since touching a 9-month peak at around $6,600 in mid-April. An unsuccessful move on Tuesday to regain the $6,000 level emboldened bearish speculators, traders said.

"The market was looking for a bounce above the key $6,000 level, but the market failed and that means it will now be looking for support around the $5,800 area," Hansen added.

* TIN STOCKS: LME three month tin, untraded in official rings, was bid down 2.3% to $18,750 a tonne, the lowest since Dec. 3 last year, after LME inventories <MNISTX-TOTAL> jumped by 55% in one day.

* CHINA MANUFACTURING: Investors are concerned about China's factory data due on Friday, which is expected to show shrinkage in May, according to a Reuters poll.

* ZINC DEFICIT: The global zinc market had a deficit of 15,000 tonnes in the first three months of 2019 versus a surplus of 37,000 tonnes in the same period last year, data showed.

* ZINC SPREAD: The premium of LME cash zinc over the three-month contract <CMZN0-3> edged back to $155 a tonne on Wednesday after touching 22-year high of $161 the day before, indicating near-term shortages in the LME system.

"The supply side issues (in zinc) 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," said analyst Daniel Hynes of ANZ.

* LEAD DEFICIT: The global lead market deficit narrowed to 7,000 tonnes in the first three months of 2019 from a deficit of 29,000 tonnes in the same period last year, data showed.

* PRICES: LME aluminium was bid down 0.6% in official rings to $1,796 a tonne, zinc was bid down 1.3% to $2,530, lead gave up 0.9% in official activity to trade at $1,809 and nickel was bid down 0.3 percent at $12,085.

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(Additional reporting by Mai Nguyen in Singapore; Editing by Keith Weir and Mark Potter)