METALS-Zinc hits three-month low on scepticism over China factory data

Eric Onstad

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

LONDON, Dec 2 (Reuters) - Zinc sunk to lowest in nearly three months on Monday as most industrial metals slipped after investors doubted that upbeat manufacturing data in China pointed to an economic recovery.

Factory activity in top metals consumer China expanded at the fastest rate in three years, a private sector survey showed on Monday, reinforcing strong government data released on Saturday.

But some analysts said the buoyant showing, especially for the Caixin/Markit manufacturing Purchasing Managers' Index, may be influenced by one-off factors.

"A lot of people are doubting the veracity of the Caixin one. That's a pretty dramatic turnaround, so there's a degree of scepticism," said Colin Hamilton, director of commodities research at BMO Capital in London.

"Normally the official numbers are above the Caixin one and for two or three months we've had it the other way around."

There was also worry that the good data might undermine a U.S.-China trade deal.

"The problem America now faces is that China looks to be returning to growth despite the tariffs, which gives the upper hand to China," Malcolm Freeman at Kingdom Futures said in a note. "This may mean no trade deals are signed this year, which will be perceived as bearish."

Benchmark zinc prices on the London Metal Exchange fell 0.8% to $2,256 in official open-outcry trading, after touching $2,247, the lowest since Sept. 4.

* ZINC POSITION: The net speculative short position of LME zinc has risen to 14.7% of open interest, a level not seen since late September, Alastair Munro at broker Marex Spectron said in a note.

* NORSK HYDRO CUT: Norsk Hydro, one of the world's biggest aluminium producers, plans to cut production by 20% at its majority-owned Slovalco plant in Slovakia, citing a weakening market.

"You've got low alumina prices, bauxite in Guinea has recovered and there's just no real tangible evidence of demand picking up yet," said Hamilton.

LME aluminium shed 0.1% to trade at $1,768 a tonne in official rings.

ALUMINIUM STOCKS: The weak aluminium market has lead to rising inventories. On-warrant LME stocks <MALSTX-TOTAL>, material not earmarked for delivery, reached 1,114,650 tonnes, the highest since Feb. 22, data showed on Monday. They have shot up 42% over the past three weeks.

* COPPER CONTRACT: China's Shanghai International Energy Exchange (INE) is preparing to launch a copper futures contract within the next year that will be open to domestic and foreign investors, according to two sources familiar with the plans.

* PRICES: LME three-month copper added 0.2% to $5,877 a tonne in official trading, nickel, untraded in rings, was bid down 0.2% to $13,650, lead was bid down 0.6% to $1,925 and tin slipped 0.3% to trade at $16,450. (Reporting by Eric Onstad Editing by Christina Fincher)