METALS-Copper eases but holds near 8-month high on demand optimism

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* LME copper stocks near 10-year lows
* Zinc stocks at lowest since 2007(Recasts, adds comment, changes dateline from Melbourne)

By Pratima Desai

LONDON, Feb 27 (Reuters) – Copper eased on Wednesday as funds took profits after prices failed to break above a key resistance level, but expectations of strong demand from top consumer China kept them near eight-month highs.

Benchmark copper on the London Metal Exchange was down 0.1 percent at $6,490 a tonne at 1112 GMT. Prices of the metal used widely in power and construction touched $6,540 on Monday, the highest since July.

“We turned more positive after the credit data for January, said ICBC Standard Bank analyst Marcus Garvey, adding that seasonal influences meant the January data “need to be taken with a pinch of salt”.

“But if you look at the composition of the numbers, they indicate potential for a less aggressive push on deleveraging.”

CREDIT: China’s banks made the most new loans on record in January, totalling 3.23 trillion yuan ($484 billion), as policymakers try to jumpstart sluggish investment and prevent a sharper slowdown. BONDS: Chinese local governments issued 418 billion yuan in debt in January, up sharply from 63.8 billion yuan in December. “There isn’t usually much, if any, government bond issuance in January, but this year there is,” ICBC Standard Bank’s Garvey said. “We’re not going to see a huge round of infrastructure stimulus this year, but it could at least potentially match the rhetoric heard at the end of last year.”

TECHNICALS: Copper’s rally stalled on Monday at $6,540, a Fibonacci resistance level. Traders say that level may take several attempts to breach and will need a trigger, which could be some sort of resolution to the U.S.-China trade dispute.

STOCKS: Copper inventories in LME registered warehouses near 130,000 tonnes are near their lowest in 10 years.

Worries about a tight LME market are exacerbated by cancelled warrants, metal earmarked for delivery, at more than 80 percent of the total. One company holding large amounts of warrants has also contributed to a premium of $28 a tonne for the cash contract over the three-month contract from a discount around $20 a tonne earlier in February. ZINC: Stocks of zinc under LME warrant at 67,825 are at their lowest since 2007, while cancelled warrants at more than 22 percent are significant.

As with copper, large holdings of zinc warrants have contributed to a tight market and created a premium of around $25 a tonne for the cash over the three-month contract from a near $10 a tonne discount earlier this month.

Three-month zinc was up 0.2 percent at $2,744.

PRICES: Aluminium gained 0.5 percent to $1,920 a tonne, lead added 0.9 percent to $2,112, tin slipped 0.5 percent to $12,905 and nickel lost 0.4 percent to $21,485.

($1 = 6.6796 Chinese yuan renminbi)

(Reporting by Pratima Desai Editing by Edmund Blair)

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