Copper sinks to 7-1/2 month low as dollar firms

* Copper hits lowest since Jan. 23 with LME stocks rising

* Dollar at 1-yr high weighs on commodity prices

* Aluminium touches 7-month low on growing demand fears

(Adds fresh comment/details, changes dateline PVS SINGAPORE)

By Anna Stablum

LONDON, Sept 9 (Reuters) - Copper hit a 7-1/2 month low with stocks rising to fresh highs, while aluminium touched a 7-month trough on Tuesday on a firm dollar and demand fears. "The stronger dollar is again depressing prices - it is the most important factor and the market is also watching the softer oil price," said analyst Eugen Weinberg at Commerzbank.

Three-month copper MCU3 on the London Metal Exchange was down at $6,881 a tonne at 0918 GMT compared with $6,950 at the close on Monday.

In early trade copper -- a key gauge of real economic activity -- hit a low of $6,830 -- the lowest since Jan. 23.

Aluminium MAL3 touched a 7-month low of $2,623 in early trade before trading at $2,624 a tonne, down $26 from Monday.

The dollar edged up to a one-year peak against a basket of currencies, riding the boost in confidence in the U.S. financial sector after the government seized control of mortgage giants Fannie Mae (and Freddie Mac .


The dollar hit 79.776 against a basket of six currencies .DXY, dragging down copper, oil and gold.

"But the situation is looking better for some metals with lead, zinc and nickel coming close to the cost of production," Commerzbank's Weinberg said.

He said as prices fell producers would be forced to cut back output, reducing inventories and prices would soon stabilise.

Lead MPB3 fell 3.3 percent to an intra-day low of $1,790 per tonne before trading at $1,798, down $53.

Zinc MZN3 touched a low of $1,715 earlier - the lowest since Aug. 20 -- before trading at $1,727, down $43.

Nickel MNI3 hit a low of $18,494, down 1.9 percent before trading at $18,550. On Monday, it closed at $18,850.

COPPER STOCKS AT 1-1/2 YR HIGH

LME copper prices have slumped about 20 percent since their record high in July of $8,940 a tonne as investors abandoned commodities on signs of a weakening world economy and a recovery in the U.S. dollar.

"Recession fears are growing in Europe and some expect Asia to slow down strongly," Commerzbank's Weinberg said.

Copper stocks rose by 1,300 tonnes to 202,125 -- the highest since March 2007.

In Shanghai, prices rose to their first premium over London futures since January.

The gap for Shanghai's three-month copper futures to the benchmark London contract, including China's 17 percent value-added tax, flipped into a premium of 348 yuan on Tuesday.

The discount had been as wide as 6,000 yuan this year.

Chinese prices have been supported by a recovery in demand from consumers who had shied away from record high prices just months ago, likely signalling a pick-up in lacklustre physical copper imports by the world's top consumer of the metal.

"Business has been limited by the Olympic and Paralympic Games, but we expect demand to return and the comparative strength in the third-month price in China is an indicator of that return," said analyst John Meyer at Fairfax Investment Bank.

Initial data for refined copper metal imports in August is due this week and is expected to show an increase at around 95,000-99,000 tonnes from 88,075 tonnes in July, which was a 16 percent gain on June.
LME tin MSN3 fell 1.8 percent or $350 to $18,750, despite a near 30 percent decline in exports from Indonesia in August.

LME stocks, which have held at around 6,000 tonnes since July, were down 50 percent since the start of the year and around their lowest in three years.

Metal Prices at 0927 GMT Metal Last Change Pct Move End 2007 Ytd Pct

move LME Cu 6890.00 -60.00 -0.86 6670.00 3.30 SHFE Cu* 55390.00 230.00 +0.42 56880.00 -2.62 LME Alum 2627.00 -23.00 -0.87 2403.00 9.32 SHFE Alu* 16980.00 -280.00 -1.62 18180.00 -6.60 COMEX Cu** 310.90 0.00 +0.00 303.50 2.44 LME Zinc 1725.00 -45.00 -2.54 2370.00 -27.22 SHFE Zinc* 13880.00 -400.00 -2.80 18950.00 -26.75 LME Nick 18450.00 -400.00 -2.12 26350.00 -29.98 LME Lead 1799.00 -52.00 -2.81 2550.00 -29.45 LME Tin 18750.00 -350.00 -1.83 16400.00 14.33 ** 1st contract month for COMEX copper * 3rd contact month for SHFE AL, CU and ZN SHFE ZN began trading on 26/3/07 (Additional reporting by Nick Trevethan, editing by Peter Blackburn)