UPDATE 7-Zinc jumps 6 percent, copper up on dollar weakness

* Zinc jumps after China scraps export rebates

* Copper and aluminium up on dollar weakness

* Copper gains capped by weak demand worries
(Updates with New York closing copper prices, adds analyst
comments)

By David Sheppard

LONDON, July 31 (Reuters) - Zinc futures jumped over 6 percent
to a two-week high on Thursday after top producer China cancelled
export rebates in a move that could curb the flow of Chinese zinc
into the world market.

Copper and aluminium futures edged higher on renewed weakness in
the dollar, despite concerns over slowing demand.

Zinc for delivery in three months MZN3 on the London Metal
Exchange (LME) rose as high as $1,984 -- its highest level since
July 15 -- before easing slightly to last trade at $1,915/1,920, up
from Wednesday's close of $1,870.

A 3,000-tonne increase in LME stocks kept gains in check, with
stocks standing at 157,325 tonnes, the highest level since September
2006.

"Zinc has been the most hated metal on the complex in recent
months but the fact is the scale of surplus in the market remains
very limited -- the market was looking oversold," said Macquarie
analyst Adam Rowley.

"While the market is likely to be in surplus until at least
2010, the potential downside for zinc now looks very limited
indeed," he added.

The Chinese tax rebate of five percent for super high-grade
zinc, used as a galvanizing agent on steel, will come to an end on
Aug. 1. [ID:nBJB000468]

DOLLAR WEAKENS

Copper MCU3 hit a week high of $8,175 a tonne, with renewed
dollar weakness boosting prices, before closing at $8,060 a tonne
from $8,030.

In New York, copper for September delivery HGU8 ended up 1.55
cents at $3.6615 a lb on the the New York Mercantile Exchange's
COMEX division, after dealing in a $3.6390-$3.7035 session range.

The dollar broadly weakened after U.S. weekly jobless claims
showed an unexpected jump. [ID:nN31304759]

Weakness in the dollar tends to boost dollar-priced commodities,
as they become cheaper for holders of alternative currencies and
more attractive as a hedge against the greenback's decline.

Poor output projections for the metal continued to keep prices
buoyed in the face of a slower global economic environment.

News Wednesday that Grupo Mexico (GMEXICOB.MX) had yet to set a
date to resume production at its massive Cananea copper mine
highlighted the metal's sensitivity to production problems.

"The market has eroded from its highs, but it just doesn't seem
to want to collapse," said Bill O'Neill, partner of LOGIC Advisors
in Upper Saddle River, New Jersey. "At the moment, I believe supply
constraints rather than demand factors are keeping the market
buoyant."

Still, the gains were capped by lingering concerns about the
strength of Chinese demand, with LME stocks rising by 4,450 tonnes
to 142,400 tonnes.

However, prices have been boosted by more than 20 percent this
year, with LME stocks still covering less than three days of global
consumption.

"The global macroeconomic picture and the future strength of
demand will eventually dominate for copper," said Rowley at
Macquarie.

Aluminium MAL3 inched up to $2,980 a tonne from $2,960, but
with LME inventories at their highest level since May 2004, analysts
were sceptical prices would move significantly higher.

Lead MPB3 rose to $2,210 a tonne from $2,180. Stocks at LME
warehouses increased 275 tonnes to 91,000, but have fallen more than
9 percent so far this month.

Western Mining (601168.SS), China's second-largest lead miner,
on Wednesday cut its lead and zinc production forecast for 2008.
[ID:nPEK167112]

"Underlying consumption is healthy, but the market is being
driven by the supply side... particularly in China," said Barclays
Capital analyst Gayle Berry.

Since slipping to a 15-month low of $1,531 a tonne on July 4,
lead has rallied by more than 45 percent on a combination of supply
concerns and strong demand for the battery material.

Nickel MNI3 fell to $18,350 a tonne from $18,750, while tin
eased to close at $22,200 from $22,500/22,550.

Metal Prices at 1745 GMT
Metal Last Change Pct Move End 2007 Ytd Pct

move
LME Cu 8060.00 30.00 +0.37 6670.00 20.84
SHFE Cu* 61770.00 970.00 +1.60 56880.00 8.60
LME Alum 2975.00 15.00 +0.51 2403.00 23.80
SHFE Alu* 19135.00 15.00 +0.08 18180.00 5.25
COMEX Cu** 371.65 3.70 +1.01 303.05 22.64
LME Zinc 1900.00 30.00 +1.60 2370.00 -19.83
SHFE Zinc* 15580.00 235.00 +1.53 18950.00 -17.78
LME Nick 18390.00 -360.00 -1.92 26350.00 -30.21
LME Lead 2200.00 20.00 +0.92 2550.00 -13.73
LME Tin 22075.00 -275.00 -1.23 16400.00 34.60 **
1st contract month for COMEX copper * 3rd contact month for SHFE AL,
CU and ZN SHFE ZN began trading on 26/3/07
(Reporting by David Sheppard; Additional reporting by Julie Crust
in London and Chris Kelly in New York; Editing by Marguerita Choy)