UPDATE 7-Copper slips on dollar's rise, weak demand

* Weak demand from China weighs on copper

* Analysts divided when Chinese buyers return

* Nickel supported as supply problems offset weak demand
(Updates with New York closing copper prices, adds analyst comments)

By Anna Stablum

LONDON, Aug 20 (Reuters) - Copper slipped in erratic trade on Wednesday,
taking its cue from the dollar and the price of oil, as lack of demand from
China, the top consumer of the metal, weighed on sentiment.

Nickel prices extended their gains, after rising more than 7 percent in the
previous session as supply side news signalling possible tightness ahead offset
soft stainless steel demand.

Copper for three-months delivery MCU3 on the London Metal Exchange fell
$65 to $7,510 per tonne at the close versus Tuesday's $7,575 per tonne.

"Metals like copper and aluminium are continuing to follow the currency
markets," said analyst Leon Westgate at Standard Bank.

In New York, copper for September delivery HGU8 settled down 3.15 cents
at $3.3970 a lb on the New York Mercantile Exchange's COMEX division.

Additional pressure came from renewed strength in the U.S. dollar, which
rebounded from Tuesday's retreat amid a growing view that the United States
could skirt a possible recession even as other major economies grappled with
slowing growth.

Industrial metals prices have tended to follow currency markets and wider
macroeconomic developments recently as the slowdown in the global economy hits
demand for metals.

Oil prices dropped more than $1 after a U.S. government report showed the
biggest weekly increase in the nation's crude inventories since 2001 amid a
rebound in storm-delayed imports.

HOLDING OFF

In addition, analysts see chances of a long-term rally rather slim as
demand from China, where the market looked as if it would make up for the loss
of the United States, is still weak.

"The Chinese are holding off buying -- they don't think the LME (London
Metal Exchange) price will pick up until the fourth quarter so there is no real
rush for them to buy," Max Layton, analyst at Macquarie Bank, said.

"In the fourth quarter we think the Chinese will increase their imports,
back up to maybe 100,000-120,000 tonnes per month," he added.

A six-month low Shanghai copper inventories <0#SGH-STOCKS>, a significant
narrowing in the Shanghai futures price discount to London prices, and the
Shanghai market's recent flip into a backwardated market structure were all
encouraging signals that Chinese demand may be ready for a rebound, David
Rinehimer, director of Citi Futures Perspective in New York, said.

"Those factors tended to limit the downside potential on this break we have
seen in prices," he said.

LME aluminium MAL3 lost $15 to $2,762 a tonne.

Stocks in LME warehouses rose by 25,050 tonnes, with 20,600 delivered into
warehouses in Detroit indicating a softening of demand from the automotive
sector, to around 1.2 million.

So far this year LME stocks are up 24 percent.

Daily average primary aluminium output in July fell to 70,000 tonnes
compared with 70,400 in June, data from the International Aluminium Institute
(IAI) show. [ID:nLK183119]

Nickel MNI3, a key ingredient in stainless steel, rallied 7.3 percent on
Tuesday as supply fears triggered short-covering. It ended the day at $19,900 a
tonne versus $19,395.

Swiss-based miner Xstrata Plc (XTA.L) said on Tuesday it was suspending
operations at its Falcondo ferronickel mining operation in the Dominican
Republic, as a result of market conditions. [ID:nLJ323673]

This year nickel is down around 28 percent. Macquarie Bank says nickel
output losses of over 70,000 tonnes have been largely offset by slowing
stainless steel demand.

Lead MPB3, mainly used in batteries, closed at $1,740 against Tuesday's
close of $1,800. The global lead market was in surplus by 41,000 tonnes in the
first six months of 2008, the International Lead and Zinc Study Group's (ILZSG)
said. [ID:nLK216024]

The global zinc market was in surplus by 72,000 tonnes in the first six
months of 2008. [ID:nLK441020] Zinc MZN3 edged up by $4 to $1,750,740.

Tin MSN3 was at $20,500/20,505 against the last quote of $19,750/19,780
on Tuesday. The backwardation was at $140 per tonne, compared to around $100
last week.

Yunnan Tin (000960.SZ), China's top producer of the metal, will cut
production by about 3,000 tonnes in July-August due to repairs, a company
director said. The firm plans to produce 60,000-70,000 tonnes of refined tin
this year. [ID:nHKG32186]
(Additional reporting by Humeyra Pamuk in London and Chris Kelly in New York,
editing by Matthew Lewis)